World Bank’s Doing Business index did not boost growth, says new study

The World Bank’s Doing Business annual report, which was discontinued in 2021 after a data manipulation scandal, did not raise GDP in countries that ranked with higher scores, a new study has found.

The Ease of Doing Business Index, launched in 2003, provided rankings and information on the business environment of different countries, including access to electricity, ability to start a business, and the ability to gain construction permits.

The study in the Journal of Comparative Economics suggests that countries ranked with higher Doing Business scores were associated with lower GDP in the short run, contradicting the widely-held belief that a business-friendly environment, as measured by the Doing Business scores, fosters economic growth.

The study, conducted by a team of economists, analysed the relationship between changes in Doing Business scores and real GDP per capita.

A robust pattern emerged from the data: improvements in Doing Business scores did not have a positive and consistent effect on GDP. Instead, higher scores seemed to temporarily hamper economic growth. The results remained consistent across various specifications and different sources of GDP data, the authors write.

One possible explanation offered by researchers for the surprising results is that the emphasis on achieving higher Doing Business scores may have diverted attention and resources from more substantial economic reforms.

The focus on superficial changes measured by the scores may have distracted countries from broader reforms necessary for sustainable and inclusive growth, they said.

Revamp and relaunch

The latest study debunked the notion that improving the business environment, as measured by Doing Business scores, fast-tracked economic development.

It also highlights the importance of conducting further research to better understand the complex relationship between business environment, economic policies, and GDP growth.

While the study challenges prevailing assumptions, it provides valuable insights into the limitations of using Doing Business scores as a sole indicator of economic performance. It calls for a nuanced approach to economic reforms and underscores the significance of embracing broader institutional and policy factors that shape long-term economic development.

The study also raised concerns that the Doing Business may have incentivised governments to “game” the indicators, focusing their reform efforts on items that are measured by the World Bank but which had a limited real-life impact on the economy. For example, the 2020 report shows Rwanda ranking 38th world-wide for ease of doing business, ahead of the Netherlands at 42nd.

“This may reflect gaming of the indicators rather than it being easier to do business in Rwanda than the Netherlands,” researchers say.

A 2021 audit documented how the bank’s leadership pressured experts to manipulate the results of the 2018 and 2020 reports.

The World Bank plans to unveil a rebranded version of the flagship report in Q2 2023 with a revised methodology, and a new mission focused on providing a more transparent snapshot of conditions for the private sector.

But the latest study’s questions about the World Bank’s misreading of countries’ growth potential may prompt a reassessment of the role and relevance of the Doing Business project and its rankings, as policymakers seek to design more comprehensive strategies for sustainable economic growth and development.