Simeon Djankov and his team are back. The 2007 edition of the Doing Business database came out recently. I am a big fan of this line of work (see here), especially because it has a very good potential to help change policy around the world. This is something Djankov mentioned again in his presentation at the Cato Institute a few days ago (see here). Doing Business presents indicators on business regulations and institutions that can be compared across 175 countries and over time. This year, a few changes have been made and 20 new economies have been added to the list.
Each indicator/topic in the report has two very useful sections. First, “Who is reforming” picks the countries that have made the best reforms and highlights their details. Second, “How to reform” provides a guide for policy makers to help them engage and carry out reforms in spite of the difficulties that they may encounter internally. If you pick “Registering Property” for instance on page 23, it tells you that New Zealand is the country where it is easiest to register property and that Nigeria has been the best reformer in the past year. Moreover, it also explains how Georgia carried out its reforms and how they (and others) should follow New Zealand’s lead.
As I said above, the most important effect of Doing Business is the institutional incentives it creates. Djankov explained in his presentation that many governments contact his team all the time to find out what to do to go up in the countries ranking. Governments in Asia and Eastern Europe have taken pride in improving their scores, as they understand that the conditions for doing business are a big part of what determines their future. Governments in Africa are now also interested. To my knowledge, both the Doing Business Report and the Millenium Challenge Account (MCA) create perhaps the most effective institutional incentives for policy change among developing countries. According to MCA, “three MCA-eligible countries were among the 10 most aggressive reformers of the past year: Georgia; Ghana; and Tanzania.”
While many countries move upward because they are coming from a pretty disastrous situation, others are stagnating or becoming worse. My beloved New Zealand for instance has become worse with regard to the Dealing with Licenses indicator. Considering the situation of New Zealand (last year it was #1), it must continue to be a beacon for the rest of the world (something the current NZ Government does not understand). France, on the other hand (and surprisingly), has been one of the best reformers in Western Europe engaging in positive reforms on five indicators.
Finally, while I believe that the conditions for doing business are very important, in the case of countries such as New Zealand, it is not the only thing that matters. How big government is and what it does with its tax revenue is as important, if not more, to prosperity.