https://dailyasianage.com/news/145500/doing-business-index-and--economic-development
EDEN BUILDING TO STOCK EXCHANGE Published: 12:44 AM, 21 October 2018
Doing Business index and economic development M S Siddiqui Entrepreneurial activity and business environment are two of the closely watched areas. In the current economic climate, growth remains a key government priority. Economic activity requires a streamlined regulatory environment and effectual policies that are transparent and accessible to all. To uphold private sector growth, many economies have aimed of simplifying the business registration process and day to day operations under self-regulation. Economies that have efficient business registration be likely to have a higher entry rate by new firms. Good governance is predominantly essential for businesses. Transactions costs are lower when regulations are simple, transparent and predictable. A number of academic researches tell that particular areas of business regulation are associated with critical social and economic outcomes including firm creation and productivity. Entrepreneurs do not have to waste valuable resources on red tape, thus, enabling anyone to do business without having to resort to connections or informal payments. In general, regulation tends to reduce growth. In most instances, better institutions help mitigate, and even eliminate, the adverse impact of regulation on macroeconomic performance. Many studies supply more insight on direct links between business regulation and growth. For example, an investigation on the impact of business regulations on growth in 135 countries during 1993- 2002 find that business regulations index and growth are consistently and positively correlated. Countries with less burdensome business regulations grow faster. In the same order of ideas, other study in 76 countries focusing on two key measures of macroeconomic performance, namely the growth and volatility of real GDP. The authors study the regulation index with a governance proxy. On a related issue, another study estimated that both "direct" and "indirect" effects of business regulation on growth. The estimates of the indirect effect show that the index of business regulation is statistically significant and positively related to growth. This result suggests that countries with less business regulation experience higher long-run growth rates as a result of higher total factor productivity. Researchers suggest that reforms, which improve business environment, can help poor nations to grow faster. They have suggested that reform programs should stimulate companies to change their behavior, to enhance investment and to encourage innovation.
The economic policymakers should reduce business costs and risk and increase competitive pressure by improving administration and fiscal policies, access to finance, legislation and labor administration, access to information on the market etc. The Results from some significant study shows that the existence of a larger number of procedures required to start a business, as well as larger minimum capital requirements are detrimental to entrepreneurship. Another study the effects of business start-up cost on employment, in a model with managers, workers and matching. They observed that higher start-up costs discourage entrepreneurs and increase the fraction of the population who become workers. Job creation suffers and employment settles at a lower level. Other study the effect of market entry regulations of European firms on the creation of new limitedliability firms, the average size of entrants, and the growth of incumbent firms. They find that costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry. All these studies have led to a renewed interest in the link between the ease of doing business and economic growth. The tax structure has direct impact on business promotion and economic development. There is a complex interaction between various environmental factors, the specifics of substantive and procedural tax law, and the outcome of a given administrative effort. The best tax administration is not simply that which collects the most revenues; facilitating tax compliance is not simply a matter of adequately penalizing non-compliance; tax administration depends as much or more on private as on public actions and reactions. All this makes tax administration a complex matter. The economic environment of a business will play a pivotal role in determining the success or failure of a business. In the market, the economic environment consists of internal and external factors can influence a business. This economic environment into the microeconomic environment, which affects business decision making - such as individual actions of firms and consumers - and the macroeconomic environment, which affects an entire economy and all of its participants. Many economic factors act as external constraints on your business, which means that entrepreneurs have no control over these macro and micro factors. These factors are directly or indirectly affect the entire economy including of course business. Macro-economic include: Interest rates, Taxes, Inflation, Currency exchange rates, Consumer discretionary income, Savings rates, Consumer confidence levels, Unemployment rate, Recession, Depression. Microeconomic factors influence also has decision of business. Unlike macroeconomic factors, these factors are far less broad in scope and do not necessarily affect the entire economy as a whole. Microeconomic factors influencing a business include: market size, demand, supply, competitors, suppliers, distribution chain, such as retail stores etc Some macroeconomic factors such as Bank interest rate, tax, currency exchange rate, unemployment etc have significant impact on business environment. If interest rates are too high, the cost of borrowing may not permit a business to expand. Tax rates will take a chunk of your income and currency exchange rates can either help or hurt the exporting of your products to specific foreign markets.
On the other hand, if the unemployment rate is high, businesses can obtain labor at cheaper costs. However, if unemployment is too high, this may result in a recession and less discretionary consumer spending resulting in insufficient sales to keep the business going. World Economic Forum makes comparison of the countries all over the world in the Doing Business. The entrepreneurs, particularly overseas investors, use to rely on 'Doing Business' index before taking any investment decision. World Bank (WB) has been publishing a series of annual Doing Business reports since 2004 investigating regulations that enhance business activity and those that constrain it. The issue of doing business, starting business, paying taxes, getting credit etc. is current and touches large spectrum of population. Businesses, goods, services are one of the essential parts of our lives. The aggregate Doing Business indicator, as well as its sub-indexes, is positively correlated with product and process innovation for new business firms in different countries. These findings stress the importance of business environment in stimulating incentives for competition and innovation. Ease of Doing Business averages the country's percentile rankings on 10 topics from, made up of a variety of indicators namely: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency. Each of the topics has equal weight in the study. World Bank's Doing Business report for 2006 to 2016 by using panel data for 155 countries estimated the impact of ease doing business on the growth rate of GDP per capita. It covered a longer period of eleven years. The key finding that the ease of doing business has an overall statistically significant effect on the annual growth rate of GDP per capita. The results provide support for the claim that the ease of doing business is an important factor for economic growth, but that the effect varies across groups of countries. The study also reports the impact of the ease of doing business on the economic growth of countries in four different income groups. These results suggest that some ease of doing business indicators have a negative effect on the economic growth of some country groups, while others have a positive effect. Indicators such as "protecting minority investors" are negatively related to per capita GDP growth in both high and upper-middle-income economies, while "dealing with construction permits" is negatively related to per capita GDP growth in both high and low-income economies. Therefore, caution must be taken when implementing reforms in these areas. Policymakers should put a priority on properly identifying and implementing needed reforms when designing growth policies in order to ensure an increase in economic growth. For many years of study on doing business Index, Singapore has the easiest to do business and has the best regulatory performance in doing business among selected economies in Asia and Bangladesh is performing worse in DBI and the economic performance better in Singapore and Bangladesh just elevated to developing country from LDC subject scrutiny by 2024. The 'Doing Business Index' of the World Bank of last year ranks Bangladesh at 176th among 190 countries trailing Sri Lanka (110), India (130) and Pakistan (144). It may surprise many to find that war torn economies like Iraq (165) and Syria (173) fared better than us.
Over the past decade, a growing body of literature has used the Doing Business indicators to analyze economic outcomes and to identify reforms that have worked. These studies assessed how the business environment affects a broad range of economic outcomes. There are many studies found a positive correlation between the business environment and economic growth. A significant number of policymakers in many countries are taking up the challenge of expanding business regulatory reforms by putting some level of priority on reforming their business regulations when designing their growth policy. The writer is a legal economist. Email: mssiddiqui2035@gmail.com