Editor's Note: The following post was submitted jointly by Mohammad Amin and Arvind Jain, both of the World Bank Group's Enterprise Analysis Unit.
For all of us working towards providing a better business and regulatory environment, it is important to know whether economic analysis has improved the quality of regulatory decisions. A proper analysis of the costs and benefits associated with regulations (government rules that govern private activity) is critical in determining which regulations to administer and in what capacity.
The conventional wisdom is that the exchanging of information on an individual or firm will go a long way in determining credit worthiness, thereby improving credit availability. When a bank evaluates a request for credit, it can either collect information on the applicant first-hand, or it can source this information from other lenders that have already transacted with the applicant. Information exchange between lenders can occur voluntarily via “private credit bureaus” or it can be enforced by regulation via “public credit registries.”
To promote the registration of new firms, many countries have been undertaking reforms to reduce the costs, days or procedures required to register a business. For example, the World Bank Doing Business report each year identifies the 10 most improved countries on the overall Doing Business index (comprised of 9 subindicators). One of these subindicators measures reforms related to starting a business, with 30-65 countries reforming in this area each year. A still unanswered question is whether some reforms are more important than others. A priori, it is not clear what magnitude of reduction in costs (or days or procedures) is necessary to create a significant impact on firm registration. In other words, what exactly constitutes a reform? Is a 20% reduction in the costs of registration sufficient, or is a 50% reduction necessary to get a substantial number of firms to register?
In a recent paper Leora Klapper and I empirically investigate the magnitude of reform required for a significant impact on the number of new registrations. We use a new dataset that is uniquely suited for this purpose: the World Bank Group Entrepreneurship Snapshots (WBGES), a cross-country, time-series panel dataset on the number of newly registered companies. We supplement it with data from Doing Business reports that contain the cost, time and procedures required for registration of new companies. Importantly, both datasets focus on limited liability companies. In an earlier paper, we used the same dataset to investigate the impact of the global financial crisis on new firm registrations.
Conventional wisdom holds that bribery is the preferred means of influencing government policy in less developed countries, while lobbying is more common in developed countries. Perhaps due to this perceived compartmentalization of lobbying and bribery, very little is known about the relationship between lobbying and bribery, the extent and effectiveness of lobbying vs. bribery in less developed countries, and how this relationship changes as countries move up the development ladder.
Buying and selling a product or service involves a number of costs, including time spent searching for the best prices, negotiating for good discounts, researching product quality and writing contracts where applicable. Broadly, these are called the transaction costs of economic exchange, and part of the reason firms exist is to keep transaction costs at a minimum.
In a series of earlier posts, I discussed a number of findings about informal (unregistered) firms in 6 African countries, including Burkina Faso, Cote d’Ivoire, Cape Verde, Cameroon, Madagascar and Mauritius. These findings were based on Informality Surveys collected by the Enterprise Analysis Unit to better understand the functioning of the informal sector—a large sector for which we have virtually no systematic data.
One can reasonably expect that frequent and unpredictable changes in economic policy might adversely affect investment by the private sector and the overall growth of the economy. For all practical purposes, uncertainty about future economic policies is a step towards economic anarchy. But precisely what causes firms in some countries to have higher uncertainty about future economic policies than others? Does the underlying political structure matter? What elements of the political structure, if any, matter for the level of policy uncertainty as perceived by private agents?
The new Doing Business 2011: Making a Difference for Entrepreneurs report has just been published, the 8th in th
The government of Madagascar had asked for assistance in boosting economic activity, creating jobs, and reducing poverty in three key regional centers: Antananarivo-Antsirabe; Nosy Be; and Taolagnaro (Fort Dauphin).