Reforms to make it easier to register a business are the most common type of reform tracked by Doing Business, with over 75 percent of countries adopting at least one reform in this area over the past decade. One of the most popular types of reforms is to set up "one-stop shop" service points by integrating different registration steps with different levels of government into a single streamlined process, lowering the time and/or cost needed to register a business.
A number of studies, all from Latin America, have examined the impact of one-stop shops on firm registration, exploiting cross-time and cross-municipality variation in the implementation of these reforms to conduct difference-in-difference analysis. Bruhn (2011) uses labor market survey data to show that a reform in Mexico, which was implemented in some of the most populous and economically developed municipalities, increased the number of registered businesses by about 5 percent. Kaplan, Piedra, and Seira (2011) find that the same reform increased the number of new firm registrations with the Mexican Social Security Institute (IMSS) by 5 percent, using administrative data. For Columbia, Cárdenas and Rozo (2009) use administrative data from Chambers from Commerce in six major cities to show that a one-stop shop also led to a 5 percent increase in businesses registrations.
These three papers thus find similar effects, which makes a pretty convicting case that one-stop shops work for increasing business registration. However, we recently conducted a study that shows the opposite result. We used data on monthly firm registrations from the Chamber of Commerce to measure the impact of the Minas Fácil Expresso program in the state of Minas Gerais, Brazil. This program aimed to extend the benefits of a one-stop shop to less populous municipalities, thereby removing the need for firms to register separately at their municipality and travel to register with the state and federal governments in a larger town or city. We find that this program actually led to a reduction in the number of firms registering during the first two months of implementation (see Figure 1). The municipalities in our sample averaged 12 firms per month registering before the reform, so that the effect represents about a 10 percent drop.
Figure 1: Summary of Estimated Treatment Impacts on Firm Registrations
One reason for the decrease could be initial delays in registrations due to officials learning to use the new system. Note that we do not find a subsequent "catch-up" in registrations. Our data covers up to 11 months after the first municipality implemented the one-stop shop, and even then we do not find a positive effect. Initial delays may thus have discouraged some firms from registering at all.
Another possible reason why we do not see an increase in firm registrations is that the benefits of registering (which include access to customers who need receipts, access to formal sources of finance and the ability to advertise) may not be as large in less populous and more remote areas, where this program was implemented, as they are in cities, where the reforms in Mexico and Colombia took place. This does not explain the drop in registrations though.
Registrations may also have dropped since the one-stop shop took away the flexibility of registering with one government agency, but not another. Partial registrations are quite common in Brazil. Before the reform, a firm could register with the federal tax authority and the state’s Chamber of Commerce without necessarily obtaining a municipal license. The municipal license often has specific zoning requirements that firms may not meet. Once all registrations are linked through the one-stop shop this could thus lead to fewer applications being approved.
The recent findings suggest that one-stop shops may not increase firm registrations in all settings. To help shed more light on the effect of these reforms our recent study illustrates how municipal administrative data can be used to quickly and cheaply evaluate the impact of municipal-level reforms. The data and Stata do files used to conduct this analysis are available in the World Bank’s microdata library to aid others who wish to follow this approach. A 2-page impact note is also available if you want a little more detail but not the full paper.
For further reading see:
Bruhn, Miriam. 2011. "License to sell: the effect of business registration reform on entrepreneurial activity in Mexico." Review of Economics and Statistics, 93(1): 382-86.
Bruhn, Miriam. 2012. "A Tale of Two Species: Revisiting the Effect of Registration Reform on Informal Business Owners in Mexico" Policy Research Working Paper 5971, World Bank, Washington, DC.
Bruhn, Miriam and David McKenzie. 2013. "Using Administrative Data to Evaluate Municipal Reforms: An Evaluation of the Impact of Minas Fácil Expresso" World Bank Policy Research Working Paper no. 6358
Cárdenas, Mauricio, and Sandra Rozo. 2007. "La informalidad empresarial y sus consecuencias: ¿Son los CAE una solución?" Documento de Trabajo 38, Fedesarrollo, Bogota, Colombia.
Kaplan, David, Eduardo Piedra, and Enrique Seira. 2011. "Entry regulation and business start-ups: Evidence from Mexico"” Journal of Public Economics 95(11-12): 1501-15.