This is the second in a series of posts discussing themes from The Aid Trap by Glenn Hubbard and William Duggan. Chapter 2, which provides a historical overview of prosperity, begins by asserting the importance of the role of business in helping poor countries rise to prosperity. The authors refer to the World Bank’s annual Doing Business report, which ranks different countries according to the ease of doing business in them, by reference to ten different factors.
The ten factors are: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Prosperous countries tend to rate high on the list, while poorer countries occupy the lowest rankings. Lower-ranked countries tend to have complicated regulations and high taxes which make it very difficult for someone to run a profitable business.
While the Doing Business factors do provide some guidance, they do not provide a complete picture of the business operating environment for different countries. Critical features of a business environment which are not measured in the report include security, corruption, labour skills, infrastructure quality, and the strength of institutions. Some factors, such as dealing with construction permits, are not necessarily good indicators of a pro-business environment, because the granting of construction permits without adequate regulation may actually be harmful to business as a whole.