World Bank Management Response

• An acknowledgement that the DB exercise has been highly effective in spurring dialogue on reforms and motivating interest and action. It has also informed a large academic literature on regulatory reform and the impact of regulation on economic and social outcomes (nearly 800 academic articles as of June 2007). Such research can aid policy makers, particularly in developing countries, in the search for the optimal kind and level of regulation to ensure that the majority of the population can participate in economic activity and benefit from legal certainty and social protection.
  
  
• The recommendation to apply similar benchmarking to other development issues and to encourage the development of actionable cross-country indicators that can track improvements over time.
  
  
• The finding that while effective in catalyzing reforms debates and dialogue, the DB indicators have not distorted policy priorities or encouraged policy makers to make superficial changes to improve rankings.
  
  
• The conclusion that the DB employing workers index complies with the core labor standards and all other relevant conventions of the International Labor Organization.
  
  
• The conclusion that the legal origin, whether civil or common law, does not determine a country’s score in the DB indicators. A hypothetical civil law economy based on best practices would rank third in the global ease of doing business.
  
  
• Concrete suggestions on improving the transparency of the data collection and analysis and the respondent selection process.
  
  
• A recommendation to use other World Bank analyses, most importantly the Enterprise Surveys and Investment Climate Assessments, to inform the choice of topics in DB and enrich the analysis in future reports.
  
  
• A concrete proposal on piloting methodologies on new indicators before including them in the aggregate ranking on the ease of doing business.

Management Observations
Management has four issues that it would like to raise with regard to the analysis and recommendations in this review.

Paying Taxes Indicator. The IEG review recommends revising the paying taxes indicator to include only measures of administrative burden. In management’s view, this recommendation is not consistent with another important recommendation, on the use of the other World Bank analyses to determine the priorities for regulatory reform. In the World Bank Enterprise Surveys, for example, tax rates are considered a top obstacle in twice as many countries as tax administration. In the Enterprise Surveys done in fiscal 2007, 17 of 40 find the tax rate to be among the top 3 obstacles, and 33 of 40 find it to be a bigger obstacle than tax administration. More generally, taxation is a regulatory tool and there is a trade-off between regulation and taxation. It is important to note that DB measures business taxes only, and therefore does not reflect the country’s overall fiscal policy and revenue collection.

Making Available Previously Published Data sets. The IEG review recommends making available all previously published data sets, not corrected for errors and methodology changes. This practice is unorthodox and is not followed by other major primary data providers. Instead, DB follows the practice of other data providers and makes available back-calculated data series, corrected for errors and methodology changes. These data are made available on the "Get Full Data" page of the DB Web site. In addition, the data used in the background research for DB are published on the "Research" page of the DB Web site. These two data sources have been widely used by researchers, with more than 800 academic papers utilizing the DB data. Management agrees to make more information available on reasons for data changes to facilitate the distinction between methodological changes, systematic changes in coding rules, and errors. All methodology changes are described in detail on the Web site at http://www.doingbusiness.org/MethodologySurveys/. All revisions that affect the data published in the DB 2007 report integrated as of the time of publication of the DB 2008 report are being made available at the "Get Full Data" page of the Web site.

Increasing the Number of Respondents. The IEG review recommends increasing the number of DB respondents. Management notes that the DB methodology fundamentally depends on reading the text of laws and regulations. DB respondents provide references to the relevant texts of the laws and regulations. This is unlike the methodology of perceptions-based surveys, which depend on having large samples of representative respondents. To ensure accurate interpretation of regulations and time estimates, DB works with local experts who routinely administer or advise on legal and regulatory requirements. Since 2004, 10,270 local experts have contributed. Management agrees to further increase the respondent pool, and has taken action, including through visits to 151 countries. In addition, management has hired a respondents’ manager as a member of the DB team to select and increase the number of respondents, focusing in particular on the poorest countries and other economies with the fewest number of respondents. Further, management commits to increase the involvement of Bank Group staff in recruiting respondents; to conduct annual data collection visits to the 50 economies with the fewest number of respondents; and to expand the piloted practice of giving out awards to the respondents who have contributed high-quality data over a sustained period of time.

Level of Regulation. The IEG review states that DB presumes less regulation is always better. This is incorrect. Six of the 10 indicators reward countries for having more regulation or a simplified way of implementing existing regulation. Top reformers in DB 2007 implemented stricter regulations (for example, China, Mexico, and Tanzania) or simplified their implementation (for example, Croatia, Guatemala, and Romania). The top 10 countries in the ease of doing business are Singapore, New Zealand, the United States, Hong Kong, Denmark, the United Kingdom, Canada, Ireland, Australia, and Iceland. Countries with no regulation receive a "no practice" score in the relevant area and the lowest ranking.

Conclusion
Overall, management welcomes this evaluation from IEG. Management generally accepts IEG’s recommendations, with some caveats. Detailed responses to the recommendations are outlined in the attached Management Action Record.