 Finding: Scope
The DB inidcators exercise is anchored in research that links characteristics of a country's business environment to firm performance and macroeconomic outcomes. As an exercise incross-country comparison, DB is not intended to, and cannot, capture country nuances. The indicators have been highly effective in drawing attention to the burdens of regulation. Reform as measured by the DB indicators typically means reducing regulations and their burden, irrespective of their potential benefits .  Recommendation
The Bank Group and stakeholders need to consider the indicators in a country context and interpret them accordingly. DB should be clear about the limitations of the indicators and their use for a broader policy dialogue on a country's development priorities.
Finding: Relevance
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 impact of a particular regulatory reform will depend on how significant a burden the regulation posed in practice. Recommendation
DB should be interpreted cautiously and used in conjunction with complementary tools such as investment climate assessments.
Finding: Information Sources
The information about laws and regulations is provided by a worldwide network of expert informants. But there are few informants – mostly lawyers -- for each indicator in each country. For the 'paying taxes' indicator, DB relies exclusively on a single firm to provide both the underlying methodology and the data for 142 countries. Recommendation
The DB team should take a strategic approach to selecting and increasing the number of informants: - Establish and disclose selection criteria for informants.
- Focus particular effort on the indicators with fewest informants and countries with the least reliable information.
- Formalize the contributions of the supplemental informants by having them fill out the questionnaire.
- Involve Bank Group staff more actively to help identify informants.
Finding: Transparency
The DB makes ongoing changes to previously presented data. For instance, there were over 2,200 changes between August and October 2007 to the posted 2007 data. These altered the published rankings for 48 countries by 10 or more positions. Although DB makes available a great deal of information about its data and methods, it remains insufficiently transparent about the number and types of informants for each indicator and the changes made to previously published data and their effects on the rankings.
Recommendation
The DB web site should disclose all data corrections and changes as they are made, explaining their effect on the rankings. To facilitate research, the web site should offer a link to previously published datasets. DB should also disclose the number of informants for each indicator at the country level .
Finding: The 'total tax rate' subindicator
The tax rate on firms is an important business consideration, but its inclusion in the DB rankings is anomalous because it does not measure regulatory burden alone. It derives from a country's fiscal requirements and policies. Moreover, the complexity of this subindicator necessitates DB's reliance on PwC as virtually the sole informant. Â Recommendation
The DB team should revise the paying taxes indicator to include only measures of administrative burden. Since the tax rate is an important part of the business climate, DB should continue to collect information about it, but exclude it from the rankings. A wider range of informants should also be engaged for this indicator.
Finding: Reform Influence
The DB indicators have been highly effective in drawing attention to the burdens of business regulation. They have motivated discussion among policy makers, but have had less influence on the choice, scope, and design of reforms. Policy makers and Bank Group staff report that they draw on a range of analytical material to determine the nature, sequence, and direction of reforms. As a cross-country benchmarking exercise, DB cannot be expected to capture the country-specific considerations involved in prioritizing, sequencing, and designing policy reforms. Â Recommendation
To make its reform analysis more meaningful, the DB team should: Make clear that DBÂ measures improvements to regulatory costs and burdens, which is only one dimension of any overall reform of the investment climate. Trace the impact of DBÂ reforms at the country level: The DB team should work with country units to analyze the effects of implementing the reforms measured by the DB (such as revised legislation or streamlined processes) on: (i) firm performance, (ii) perceptions of business managers on related regulatory burdens, and (iii) the efficiency of the regulatory environment in the country.
Finding: Future Work
The DB exercise has demonstrated that a cross-country ranking exercise can be effective in spurring dialogue and motivating interest and action. Â Recommendation
To plan future additions to or modification of the indicators, the DB team should use Bank analyses to drive the choice of DB indicators: Business Enterprise Surveys, Investment Climate Assessments, and other work can help determine stakeholders' priorities for domestic private sector growth. The DB team should use such analyses to determine the choice of new indicators and periodically reassess its current set of indicators.
Finding: Employing Workers
The employing workers indicator is consistent with the letter of ILO provisions, but four measures do not reflect their spirit insofar as the DB criteria give lower scores to countries that have policies for greater job protection. Finding: Legal OriginsÂ
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. Do Civil Law Countries Score Lower than Common Law Countries? | Differences are Significant | | Indicator | Subindicator | | Highly Significant* |  | | Employing Workers | Difficulty of Hiring Index | | Employing Workers | Rigidity of Hours Index | | Employing Workers | Difficulty of Firing Index | | Getting Credit | Credit Information Index** | | Getting Credit | Legal Rights Index | | Protecting Investors | Director Liability Index | | Protecting Investors | Shareholder Suits Index | | Starting a business | Procedures (number) | | Starting a business | Cost (% income of capita) | | Starting a business | Min. capital (% income of capita) | | Paying taxes | Time (hours) | | Significant* |  | | Paying Taxes | Payments (number) | | Starting a business | Time (days) | | Dealing with licenses | Time (days) | * Significance level set at 95%, Highly significant differences set at 99%.
** All statistically significant differences favor English common law countries except for the credit information. |
|
On 13 subindicators listed in the table below, civil law countries scored significantly lower. Six of these significant differences relate to the number of procedural steps, commonly regarded as excessive in the French system. Four differences relate to the greater protection of debtors and the lesser protection of minority investors that characterize the civil law; the DB indexes award points for attributes found primarily in common law. Three differences relate to job protection, which may derive not from legal origin, however, but rather from policy choices made by this set of countries.  Â Also see:Â Can a Civil Law Country Succeed in a "Doing Business" World?
Inaccurate nomenclature and overstated claims of the indicators' explanatory power have provoked considerable criticism from stakeholders. DB makes much of its country rankings. The rankings entail three weaknesses. First, because most DB indicators presume that less regulation is better, it is difficult to tell whether the top-ranked countries have good and efficient regulations or simply inadequate regulation. Second, the small informant base makes it difficult to measure confidence in the accuracy of the individual indicator values and thus in the aggregate rankings. Third, changes in a country's ranking depend importantly on where it sits on the distribution; small changes can produce large ratings jumps, and vice versa. These factors contribute to anomalies in the rankings. |
RSS