Ease of doing business index
The ease of doing business index was an index created jointly by Simeon Djankov, Michael Klein, and Caralee McLiesh, three leading economists at the World Bank Group, following the release of World Development Report 2002. The academic research for the report was done jointly with professors Edward Glaeser, Oliver Hart, and Andrei Shleifer. Though the first report was authored by Djankov, Klein, and McLiesh, and they continue to be listed as "founders" of the report, some sources attribute the genesis of the idea to Djankov and Gerhard Pohl. Higher rankings indicated better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the economic growth effect of improving these regulations is strong. Other researchers find that the distance-to-frontier measure introduced in 2016 after a decision of the World Bank board is not correlated with subsequent economic growth or investment.
"World Development Report 2002", the basis of the research behind Doing Business, analyzes how to build effective institutions. In understanding what drives institutional change, the report emphasizes the importance of history, highlighting the need to ensure effective institutions through a design that complements existing institutions, human capabilities, and available technologies. The study was guided by Joseph Stiglitz and Roumeen Islam with principal authors Simeon Dyankov and Aart Kraay. Several background papers, including by Nobel Prize winners Robert Shiller, Amartya Sen and Gabriel García Márquez, were published in academic journals or books.
The report was discontinued by the World Bank on September 14, 2021 following an audit documenting how bank leadership pressured experts to manipulate the results of the 2018 and 2020 reports. Several organizations have proposed replacements, including the Antigua Forum, the World Bank, and the Fraser Institute. In 2023 the Templeton Foundation extended a grant to Professor Robert Lawson at Southern Methodist University to propose a methodology for restarting the project in academia.
The World Bank released the methodology for the replacement of the index in May 2023. For each of the twelve topic areas, the document provides the motivation, selected indicators, detailed questionnaires, benchmarking parameters, detailed scoring rules, and data collection sources. The World Bank conducted a series of methodology workshops worldwide. Their main purpose was to provide a detailed presentation on the project’s methodology, including overall scope and topic-specific information. The workshops also served to raise awareness about this new benchmarking initiative and disseminate its potential for reform advocacy, policy advice, and development research. The relaunch took place in October 2024 under the moniker "Business Ready," after two delays.
File:Ease of Doing Business 2020.png|thumb|World Bank's Ease of Doing Business index map for 2020
Methodology
The report was a benchmark study of regulation. The survey consisted of a questionnaire designed by the Doing Business team with the assistance of academic advisers. The questionnaire centered on a simple business case that ensures comparability across economies and over time. The survey also based assumptions on the legal form of the business, size, location, and nature of its operations. The ease of doing business index was meant to measure regulations directly affecting businesses and did not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime.The next step was gathering data surveys of over 12,500 expert contributors in 190 countries who deal with business regulations in their day-to-day work. These individuals interacted with the Doing Business team in conference calls, written correspondence, and visits by the global team. For the 2017 report, team members visited 34 economies to verify data and to recruit respondents. Data from the survey was subjected to several rounds of verification. The surveys were not a statistical sample, and the results were interpreted and cross-checked for consistency before being included in the report. Results were also validated with the relevant government before publication. Respondents filled out written surveys and provided references to the relevant laws, regulations, and fees based on standardized case scenarios with specific assumptions, such as the business being located in the largest business city of the economy.
A nation's ranking on the index was based on an average of 10 subindices:
- Starting a business – Procedures, time, cost, and minimum capital to open a new business
- Dealing with construction permits – Procedures, time, and cost to build a warehouse
- Getting electricity – procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
- Registering property – Procedures, time, and cost to register commercial real estate
- Getting credit – Strength of legal rights index, depth of credit information index
- Protecting investors – Indices on the extent of disclosure, the extent of director liability, and ease of shareholder suits
- Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit
- Trading across borders – Number of documents, cost, and time necessary to export and import
- Enforcing contracts – Procedures, time, and cost to enforce a debt contract
- Resolving insolvency – The time, cost, and recovery rate under a bankruptcy proceeding
- Distance to the frontier – Shows the distance of each economy to the "frontier," which represents the highest performance observed on each of the indicators across all economies included since each indicator was included in Doing Business
- Good practices – Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business
While fewer and simpler regulations often imply higher rankings, this was not always the case. Protecting the rights of creditors and investors, as well as establishing or upgrading property and credit registries, may mean that more regulation is needed.
In most indicators, the case study referred to a small domestically owned manufacturing company—hence the direct relevance of the indicators to foreign investors and large companies is limited. DB uses a simple averaging approach for weighting sub-indicators and calculating rankings. A detailed explanation of every indicator can be found through the DB website and a.xls archive that simulates reforms.
Some caveats regarding the rankings and main information presented have to be considered by every user of the report. Mainly:
- Doing Business did not measure all aspects of the business environment that matter to firms or investors, such as the macroeconomic conditions, or the level of employment, corruption, stability, or poverty, in every country.
- Doing Business did not consider the strengths and weaknesses of neither the global financial system, nor the financial system of every country. It also doesn't consider the state of the finances of the government of every country.
- Doing Business does not cover all the regulations or all the regulatory requirements. Other types of regulation such as financial market, environment, or intellectual property regulations that are relevant for the private sector are not considered.
History
The Doing Business report has its origins in a 2002 paper published in the Quarterly Journal of Economics by Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer under the title . The study presents data on the regulation of entry of start-up firms in 85 countries covering the number of procedures, official time and official cost that a start-up must bear before it can operate legally. The main findings of the paper are that: "Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry." The paper became widely known, with over five thousand academic references, because it provides quantitative evidence that entry regulation benefits politicians and bureaucrats without adding value to the private sector or granting any additional protection.Several countries have launched reforms to improve their rankings. These efforts are motivated to a great scope by the fact that the World Bank Group publishes the data, and hence coverage by the media and the private sector every year. Also, Doing Business highlights every year the successful reforms carried out by each country. The Regulation of Entry was published, Simeon Djankov and Andrei Shleifer have published nine other academic studies, one for each set of indicators covered by the report.
Over 18 years, 2003 to 2020, the reports recorded nearly 5,000 regulatory reforms implemented by 190 economies.
- Poland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency.
- Worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business as measured by Doing Business. Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration, and facilitating trade across international borders. Of the 201 regulatory reforms recorded in the past year, 44% focused on these 3 policy areas alone.
- Singapore topped the global ranking on the ease of doing business for the seventh consecutive year, followed by Hong Kong SAR; New Zealand; the United States; and Denmark. Georgia was a new entrant to the top 10.
In 2015, Doing Business covered regulations measured from June 2013 through June 2014 in 189 economies, including territories like Hong Kong. For the first time this year, Doing Business collected data for 2 cities in 11 economies with more than 100 million inhabitants. These economies include Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation, and the United States. The added city enables a sub-national comparison and benchmarking against other large cities.
In 2021, the World Bank discontinued Doing Business, following allegations of data manipulation, undue influence, and unethical behavior by several staff including Djankov, including former World Bank vice-president Farid Belhaj, former World Bank research director Shanta Devarajan, former World Bank president Jim Yong Kim, and IMF managing director Kristalina Georgieva.
In October 2023, The Economist summarized the impact of the project, tracing its origins back to Austrian economist Friedrich Hayek. This Nobel-prize-winning economist and philosopher published the first volume of his magnum opus, “Law, Legislation and Liberty” in 1973, where he argued that the common-law approach is more amenable to freedom than its civil-law counterpart. Both Hayek and the Doing Business authors over-promised on the effects of regulatory reform. A 2024 paper by scholars at the University of Torino however finds significant positive effects on economic growth from reforms associated with Doing Business.