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The World Bank’s 'Doing Business' Should Pick a Methodology and Stick with It

November 3, 2014 in Economics

By Dalibor Rohac

Dalibor Rohac

In some media outlets, the publication of the 2015 Doing Business report by the World Bank gave birth to exuberant headlines. Russia Today, for example, reported jubilantly: “Russia jumps record 30 places in Doing Business ranking”. The sentiment was echoed by the Wall Street Journal’s Emerging Europe blog, which reported that the report “showed Russia moved up 30 places to 62nd compared with its 92nd position last year and number 111 two years ago.”

Has Russia’s business environment taken a radical turn for the better over the past year? Probably not. The truth is that constant revisions to the Doing Business report risk making it useless.

What has changed is the report’s methodology. The most important change is to the way its overall ranking is arrived at. In the past, a simple average was taken of each country’s percentile ranks in different areas such as paying taxes, getting credit, registering property and so on. Instead, this year’s edition uses an average ‘distance to the frontier’ calculated by comparing the performance of a country in a given area with the best performance recorded by any country in that area.

Other changes involve the introduction of new measures of regulatory quality. One example is the extent to which insolvency legislation reflects the World Bank’s Principles for Effective Insolvency and Creditor/Debtor Regimes and the UN’s Legislative Guide on Insolvency Law. This shift in methodology is not uncontroversial, as the report partly acknowledges.

First, the qualitative measures will reward economies that “follow some good practices even if they may face challenges in implementing those laws” (p. 27 of the report). Second, this change may be seen as caving in to pressures to punish economies with light-touch regulatory frameworks: “In general, economies with less regulation or none at all will have a lower score on the new indicators” (also p. 27). And third, the new indicators — referencing the frequently changing views of ‘best practice’ in regulatory practice — represent a departure from what has traditionally been the main virtue of the Doing Business report: its reliance on simple, objective, clearly defined attributes of legal rules and their enforcement.

Last year, the World Bank conducted a high-level review of its report led by Trevor Manuel, a former South African finance minister. The review gave rise to rumours that <a target=_blank href="http://www.latimes.com/business/la-fi-mo-world-bank-doing-business-rankings-20130624-story.html" …read more

Source: OP-EDS

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