The Underlying Framework of the DBI

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Methodology and Data Reliability Motivating and Designing Reforms  Findings and Recommendations

The DB indicators exercise is anchored in research that links characteristics of a country's business environment to firm performance and thence to macroeconomic outcomes. The regulatory framework-the part of the business environment that Doing Business measures-has been shown to be associated with firm performance, but its association with macroeconomic outcomes is less clear. Many other factors affect macroeconomic outcomes, and the direction of causality between regulation and economic outcomes is very difficult to isolate. Since regulations generate social benefits as well as private costs, what is good for an individual firm is not necessarily good for the economy or society as a whole. Therefore, policy implications are not always clear-cut, and the right level and type of regulation is a matter of policy choice in each country.

The DB indicators exercise reflects the limitations inherent in the underlying research. As an exercise in cross-country comparison, DB is not intended to, and cannot, capture country nuances. Firms' investment decisions also depend on variables not measured by the DB indicators, such as the cost and access to finance and infrastructure, labor skills, and corruption. Different aspects of regulation have varying degrees of economic importance depending on countries' income levels, legal regimes, and other characteristics. Seven of DB's 10 indicators presume that lessening regulation is always desirable whether a country starts with a little or a lot of regulation. Reform as measured by the DB indicators typically means reducing regulations and their burden, irrespective of their potential benefits.

The evaluation confirmed that the DB indicators primarily measure laws and regulations as they are written. But the relevance of each indicator in any particular country depends on the extent to which the law is actually applied, which DB does not aim to measure. Likewise, the pay-off of a particular regulatory reform will depend on how significant a burden the regulation posed in practice. These limitations underscore the need for DB to be interpreted cautiously and used in conjunction with complementary tools such as investment climate assessments.

Overall, the indicators objectively and reliably measure what they set out to measure, with a few qualifications. The controversial 'employing workers' indicator is consistent with the letter of relevant ILO conventions, but not always their spirit, insofar as it gives lower scores to countries that have chosen policies for greater job protection. Systematic differences in the country rankings for a few indicators are associated with countries' legal origins in civil or common law, but these patterns have little impact on the overall rankings or the validity of the exercise. The 'paying taxes' indicator includes an anomalous subindicator-the 'total tax rate'-which does not simply measure administrative burden to firms, but rather reflects a country's overall fiscal policy derived from social preferences. Finally, inaccurate nomenclature and overstated claims of the indicators' explanatory power have provoked considerable criticism from stakeholders.