Evaluating the “Doing Business” Indicators

The "Doing Business" indicators are an annual ranking system compiled by the World Bank to assess the ease of doing business in over 178 countries. These rankings are often used as an indication of development progress; accordingly there is substantial concern about the accuracy of the report and the composition of the different indicators. To address these concerns, the Independent Evaluation Group (IEG) conducted their own assessment of Doing Business’ methodology. The report was recently released at a World Bank discussion, where various experts from IEG and the World Bank shared their thoughts about the Doing Business indicators.

IEG’s report looked at what the indicators really measure, how the evaluations are constructed, and how the rankings are used. Victoria Elliot, the main author of the report, gave an overview of her group’s findings. They developed four core recommendations for the World Bank’s Doing Business team:

1. Do not overstate the indicators’ scope and explanatory power. IEG felt that the Doing Business report was limited because it only examined some factors affecting performance. Their indicators addressed less than half of the constraints reported by business owners.
2. Incorporate more informants into data collection. The report found that Doing Business mostly relied on law firms to provide information about official policies and restrictions, and gave very little attention to the experiences of actual business owners.
3. Disclose data changes and ranking updates as they’re made. Updates to the data in the Doing Business report drastically changed some countries’ rankings, but these changes were not widely publicized. Consequently, some countries who improved their practices still face the stigma of a low Doing Business ranking.
4. Simplify the “Paying Taxes” section of evaluation. IEG recommended that the World Bank remove the tax rate from this ranking. They also criticized the dependence on the Price Waterhouse Cooper firm in obtaining data about paying taxes.

Other commentators generally agreed that the Doing Business report provides useful information, but it is far from perfect and should not be used as a definitive judgment of economic progress in developing countries. Francois Bourguignon, former director of the World Bank, cautioned against relying too much on the indicators both because they do not show progress within a country and because the criteria for evaluation are based more on intuition than rigorous economic analysis. At the same time, he applauded Doing Business for sparking a dialogue about business regulations in developing countries. Dennis DeTray, Vice President for Special Initiatives at the Center for Global Development, emphasized the limitations of a report that tries to apply the same standards to a wide range of countries. Each economy has its own unique considerations, and attempting to set standardized goals for development may be more harmful than helpful.

Penelope Brook, head of the World Bank team in charge of the Doing Business indicators, also had the opportunity to respond to criticisms of the rankings. She thanked IEG for their recommendations, but upheld certain aspects of the original report. She defended the inclusion of the “Paying Taxes” indicator, because the tax burden can be a significant obstacle to new businesses in some countries. Ms. Brook also explained that the team relied on data from law firms because they felt it was the most efficient way to gather a uniform and accurate assessment of regulations. Finally, she reminded the audience that the Doing Business report aims to explore ways to construct effective and pertinent business regulations that will reduce the size of the informal sector in developing countries. It is not an all-encompassing document, and the assessment is only designed to judge how hard or easy it is to open a business in developing countries. Ms. Brook echoed the other commentators’ sentiments when she stated that the Doing Business indicators should be catalysts for reform, not guidelines for policy changes.

Sponsor: The World Bank and the Independent Evaluation Group
Date: June 12, 2008
Time: 10:00am – 12:00pm
Representative Attending: Kate Lonergan