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Welcome
***Please Note: the deadline for submitting comments on the Donor Guidance has now passed***
This Blog has been created to provide a space in which individuals can post comments or feedback on the Donor Guidance produced by the Business Environment Working Group of the Donor Committee for Enterprise Development.
To view the Donor Guidance please click here
General feedback and comments concerning a specific chapter or issue are both warmly welcomed. To view existing comments, or to post your own, please click on the relevant heading. If you would like to suggest additional categories, please email me.
This Blog has been created to provide a space in which individuals can post comments or feedback on the Donor Guidance produced by the Business Environment Working Group of the Donor Committee for Enterprise Development.
To view the Donor Guidance please click here
General feedback and comments concerning a specific chapter or issue are both warmly welcomed. To view existing comments, or to post your own, please click on the relevant heading. If you would like to suggest additional categories, please email me.
2 comments:
Comments on two references on page 3
There it says:
(...) in many developing countries, the business environment is hostile to market-led growth. ‘Modern day business enterprises in Africa and the transition countries suffer regulatory barriers which were largely absent in 18th and 19th Century Europe and North America when these areas were industrialising.
Firstly, this argument seems very interesting and it is certainly an important task to think about lessons we can learn from economic development in industrialised countries. However it is questionable at the same time. The industrial revolution since the 18th century resulted in groundbreaking technological developments in Europe and North America. Subsequently a new era of industrial production began which saw new production processes, new products etc. Implicitly “prescribing” a “regulatory anarchy” to Africa therefore seems to be lopsided as it arguably disregards the main driver (epoch making innovations!) of economic development and growth in European and North American history.
It should be noted as well that regulation of economic activity has not been absent at all in Europe. Guilds, religious rules informal rules, class barriers etc. created an environment that did not allow unrestricted - respectively free choice - of economic activity.
Secondly, with regard to the manifold development problems in Africa it has to be discussed how significant growth effects as a result of cutting red tape can realistically be. Recently Ramachandran (2007) gave a sceptical answer to the questions: Will Cutting Red Tape Lead To An Asian-Style Boom For Africa? in her Blog at the Center for Global Development (CGDev)
Furthermore it says on page 3:
Similarly, 16 of the 20 countries at the bottom of the 2007 league table compiled by the World Bank on the ease of doing business are poor countries in Africa.3 Indeed, if a country reformed sufficiently to move from the bottom quartile to the top quartile in their ranking, it would add 2.2 percent to the annual growth rate. (the correct percentage is 2.3 in the paper by Djankov et al. and not 2.2%!)
From my point of view it seems in general questionable whether the Doing Business Ranking (at least just the 2007 ranking) should play such a prominent role in a document like the Donor Guidance. The Doing Business Ranking is without a doubt an interesting and important source of information, however the relevance and the extent of the measured indicators for growth (especially if it is supposed to be pro-poor!) is not yet clear. In fact there are scientific debates almost on any indicator (e.g. business start-up, labour regulations, taxes). This existing huge body of research shows a broad range of more differentiated conclusions that are partly even contrasting the studies on which the indicators are built.
Recently Eifert analyses four Doing Business Indicators ( Starting a business, Closing a business, Employing workers und Enforcing contracts ) and in a first draft of his paper states:
(...) de jure regulatory reform over the period 2003-06 has not significantly boosted either aggregate investment or employment in the short run. (...) The results contrast with recent research that uses the cross-sectional dimension of the Doing Business data and finds strong cross-country correlations between regulatory burdens and economic outcomes. (p. 42)
He acknowledges though that there might be stronger results if longer periods are studied.
Furthermore, for instance Gørgens, Paldam and Würtz draw the following interesting conclusion based on their econometric analysis:
(…) there is no simple, linear relationship between growth, income and regulation. A low level of regulation is optimal for rich countries, and highly regulated middle-income countries can benefit from deregulation. However, regulation does not matter much for poor countries, nor for middle-income countries with low levels of regulation. (p. 16)
All this shows that the relevance of the indicators measured by the Doing Business (or even regulation in a broader sense) for growth (especially in Least Developed Countries) is not yet fully understood. There exists a vibrant debate in the research community…the draft Donor Guidance does not really reflect this.
Comments on two references on page 3
There it says:
(...) in many developing countries, the business environment is hostile to market-led growth. ‘Modern day business enterprises in Africa and the transition countries suffer regulatory barriers which were largely absent in 18th and 19th Century Europe and North America when these areas were industrialising.
Firstly, this argument seems very interesting and it is certainly an important task to think about lessons we can learn from economic development in industrialised countries. However it is questionable at the same time. The industrial revolution since the 18th century resulted in groundbreaking technological developments in Europe and North America. Subsequently a new era of industrial production began which saw new production processes, new products etc. Implicitly “prescribing” a “regulatory anarchy” to Africa therefore seems to be lopsided as it arguably disregards the main driver (epoch making innovations!) of economic development and growth in European and North American history.
It should be noted as well that regulation of economic activity has not been absent at all in Europe. Guilds, religious rules informal rules, class barriers etc. created an environment that did not allow unrestricted - respectively free choice - of economic activity.
Secondly, with regard to the manifold development problems in Africa it has to be discussed how significant growth effects as a result of cutting red tape can realistically be. For instance, Ramachandran gave a sceptical answer to the questions: Will Cutting Red Tape Lead To An Asian-Style Boom For Africa? in her Blog at the Center for Global Development.
Furthermore it says on page 3:
Similarly, 16 of the 20 countries at the bottom of the 2007 league table compiled by the World Bank on the ease of doing business are poor countries in Africa.3 Indeed, if a country reformed sufficiently to move from the bottom quartile to the top quartile in their ranking, it would add 2.2 percent to the annual growth rate. (the correct percentage is 2.3 in the paper by Djankov et al. and not 2.2%!)
From my point of view it seems in general questionable whether the Doing Business Ranking (at least just the 2007 ranking) should play such a prominent role in a document like the Donor Guidance. The Doing Business Ranking is without a doubt an interesting and important source of information, however the relevance and the extent of the measured indicators for growth (especially if it is supposed to be pro-poor!) is not yet clear. In fact there are scientific debates almost on any indicator (e.g. business start-up, labour regulations, taxes). This existing huge body of research shows a broad range of more differentiated conclusions that are partly even contrasting the studies on which the indicators are built.
Recently Eifert analyses four Doing Business Indicators ( Starting a business, Closing a business, Employing workers und Enforcing contracts ) and in a first draft of his paper states:
(...) de jure regulatory reform over the period 2003-06 has not significantly boosted either aggregate investment or employment in the short run. (...) The results contrast with recent research that uses the cross-sectional dimension of the Doing Business data and finds strong cross-country correlations between regulatory burdens and economic outcomes. (p. 42)
He acknowledges though that there might be stronger results if longer periods are studied.
Furthermore, for instance Gørgens, Paldam and Würtz draw the following interesting conclusion based on their econometric analysis:
(…) there is no simple, linear relationship between growth, income and regulation. A low level of regulation is optimal for rich countries, and highly regulated middle-income countries can benefit from deregulation. However, regulation does not matter much for poor countries, nor for middle-income countries with low levels of regulation. (p. 16)
All this shows that the relevance of the indicators measured by the Doing Business (or even regulation in a broader sense) for growth (especially in Least Developed Countries) is not yet fully understood. There exists a vibrant debate in the research community…the draft Donor Guidance does not really reflect this.
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