Doing Business Blog - The World Bank Group

Doing Business in Kenya 2010

The Doing Business in Kenya 2010 report is out today, just on the heels of the annual Doing Business 2010 report. Globally, Kenya ranked 95 out of 183 economies. Doing Business in Kenya 2010, the first subnational report on Kenya, suggests Kenya could improve its ranking by 17 positions simply by adopting best practices already in place in the 11 Kenyan localities covered in the report:

If a hypothetical city, "Kenyana", were to adopt the best practices already in place in Kenya, its ranking would improve in all four areas of regulation that are the focus of this study, putting "Kenyana" in 78th place among the 183 economies measured in the global Doing Business report. That is 17 positions better than Kenya’s current global rank (represented by Nairobi).

Here is the full report, plus the press release and a Powerpoint presentation. 

Doing Business 2010: Reforming through Difficult Times

Yup, it's that time of year again...Doing Business 2010 has just been released (at precisely 9/9/09 at 00:09 GMT, no snickers please). The widely cited rankings from the report are now publicly available, and perhaps one of the most important results this year is that Rwanda has been ranked the top reformer, the first time for a Sub-Saharan African economy.

One other headline from the report caught my attention. More governments reformed this year than in any year since 2004 (the first year of Doing Business). And much of this reform occurred in low- and lower-middle income economies. The financial crisis and its impact on the global economy clearly haven't reduced the commitment of governments in the developing world to improving their business environments. 

Here are a few more highlights from the report:

Since 2004 Doing Business has been tracking regulatory reforms aimed at improving the ease of doing business. Despite the challenges presented by the financial crisis, the number of reforms hit a record level this year. Between June 2008 and May 2009, 287 reforms were recorded in 131 economies, 20% more than the year before. Reformers focused on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures.

Doing Business in India

If you wanted to start a business in India, what city would you pick? The just-released report Doing Business in India 2009 has an answer: Ludhiana. Hyderabad and Bhubaneshwar would also be good choices. Why? These were ranked as the top three cities in India (out of 17 included in the ranking) in the overall ease of doing business. 

Want Higher Productivity? Reduce Entry Costs

Want higher productivity? Reduce entry costs. This is the main finding in a new paper by Levon Barseghyan (Cornell) and Ricardo DeCecio (the Fedreal Reserve). Using the regulation of entry data from Djankov et al (2002), they find that the productivity of countries with entry costs in the lowest decile is 3.43 times higher than that in countries in the highest decile.

What is the mechanism for this difference? The authors find that, "The mechanism through which entry costs influence productivity is that countries with high entry barriers have lower business density and higher variance of employment distribution across firms."

This is an exciting result as the link between regulation and productivity is under-researched. So is the link between regulation and economic growth. But as growth is affected by so many things, studying the possible channels through which the ease of doing business results in higher growth is the way to go. Barseghyan and DeCecio provide evidence for one such channel: from entry costs to entrepreneurship to lower productivity and hence retarded growth.

This result is always of interest, but particularly now when politicians around the world are looking for ways to stop the decline in income caused by the unfolding crisis.

Democracy and Reforms

There has been a sneaking suspicion that regulatory reforms (a la Doing Business) are easier in less democratic countries as the rulers can decide what to reform without the pain of a lengthy parliamentary or civil society debate. As it turns out, this is incorrect. Democracies are bigger reformers.

This is the main finding in a recent paper by Simeon Djankov and Mohammad Amin, Democracy and Reforms.

The abstract: "We use a sample of 147 countries to investigate the link between democracy and reforms. Democracy may be conducive to reform, because politicians have the incentive to embrace growth-enhancing reforms to win elections. On the other hand, authoritarian regimes do not have to worry as much about public opinion and may undertake reforms that are painful in the short run but bring future prosperity. We test these hypotheses, using data on microeconomic reforms from the World Bank's Doing Business database. These data do not suffer the endogeneity issues associated with other datasets on changes in economic institutions. The results provide a robust support for the claim that democracy is good for growth-enhancing reforms."

This is surprising at first, but on second thought it becomes obvious: democracies bring political competition, and political competition brings the desire to do better economically....hence reforms.

The next question is what other important variables correlate with reforms. Mohammad and I are now working on a paper linking natural resources and the propensity to reform. This is particularly relevant in the past few years, with commodity prices shooting up. Perhaps their recent collapse (not cocoa though) will bring about more reforms. A case of positive externality.

Closing a Business

For years, this topic has been the least active in Doing Business. No more. The recent crisis has brought many businesses to bankruptcy, with countless more to come. It is a good time to be a bankruptcy lawyer.

How timely then that the background paper to Closing a Business has just been published in the Journal of Political Economy. The paper, Debt Enforcement Around the World, is written by Simeon Djankov, Oliver Hart, Caralee McLiesh, andAndrei Shleifer.

The main point of the paper? That rich and common law countries have more efficient bankruptcy procedures; and that the availability of floating charge finance and the absence of appeals during the procedure (as opposed to before the procedure has started) make for more expedient bankruptcy. That rich countries have better bankruptcy is especially heart-warming: they will need it badly in the coming year or two. According to the latest forecast, OECD economies are going to shrink by 1 to 2 percentage points in 2009 alone. This means lots of exit.

The analysis in the paper is already used by other researchers. For example, in a recent paper, Levon Barseghyan (Cornell) shows that inefficient bankruptcy regimes cause more macro volatility as factors of production do not move freely across firms and sectors. Debt Enforcement Around the World is the sixth background paper to Doing Business published in a top economics journal. Another one - Trading on Time  - is forthcoming in the Review of Economics and Statistics. The tax paper is hopefully soon to appear in the American Economic Journal: Macro. That leaves two to go.

Bankruptcy in Japan

I just came across a paper describing the various bankruptcy procedures in Japan (circa 2004), and their duration in practice. Japanese bankruptcy law is similar to US laws, but it has a "fast-track" procedure called civil rehabilitation. Introduced in April 2000, it has become the most used procedure. Why? According to a study by Professor Peng Xu at Hosei University, it takes 0.6 years on average from entry into the procedure to resolution. I checked the Doing Business number for Japan in closing a business: remarkably, it is exactly 0.6 years. This is another indication of the accuracy of this indicator in Doing Business.

The Birth of a Doing Business Report

November 14 was my due date: I'm supposed to deliver my first baby. It is a girl. Nothing has happened so far. Looking back over the past 9 months, I'm wondering about other events in life that take about the same time and go by (too) fast. A graduate program for example. Or the Doing Business report cycle.

Early January of each year, Doing Business sends out surveys, one for each of the 10 topics, to our 6,700 local experts in 181 economies around the world.

Local experts or 'respondents' as we call them, are asked to return the completed questionnaire 3 weeks later, towards early February. Some do it immediately, others need more encouragement. All 6,700 experts share their expertise for free, "pro bono", knowing their work- through the publication of the Doing Business reports, helps to inspire governments to reform business regulations and cut red-tape.

A second time in Second Life

For the second time in a row, the Doing Business team is venturing into Second Life - an online virtual world - to release its annual report. I'll be assisting Dahlia Khalifa with the presentation on October 30th, 2pm EST. If you want to join in, you can watch streaming video of the event. The more adventurous among you can get an avatar - registration on Second Life is free - and teleport to our 'build' on this island.      

To get a feel for Second Life, check out Dahlia's interview yesterday on the upcoming virtual release of Doing Business 2009 on the Real Biz in SL show. (Dahlia handled the interview like a pro, this being her second year in Second Life.)

Cross-posted on the PSD blog.

Landlocked Economies at United Nations

In early October the World Bank, the UN – OHRLLS, and the UNCTAD came together at the United Nations in New York for the “High-level Investment Forum, Investing in landlocked developing countries: Trends, experiences and the way forward”. The objective of the forum was to bring together policy makers and private sector practitioners from landlocked developing countries, as well as current and prospective international investors to analyze current trends in FDI flows to LLDCs, exchange experiences and best practices and to explore future opportunities for FDI to these countries.

At the conference Doing Business launched the report Doing Business in Landlocked Economies 2009, which analyses the ease of doing business in 38 landlocked economies. When compared to coastal economies, landlocked countries tend to rank lower in starting a business, dealing with construction permits, getting credit, protecting investors, paying taxes, trading across borders, and closing a business.