Business Infrastructure and the Ease of Doing Business

Aims: Businesses are increasingly affected by the economic, social, legal, technological and political factors. In this paper, we term this the business infrastructure of a country. We analyze how the business infrastructure predicts how easy it will be to do business in a country.

Study Design: Our measure of ease of doing business is taken from the World Bank’s index and renowned project “Ease of Doing Business”. Their index is calculated on specific features of the micro level decisions facing a business such as ease of getting credit, getting a business license, opening and closing a business, hiring/firing workings, etc. In this paper we test how well the business infrastructure can be used as a predictor of the ease of doing business.

Methodology: This test provides an alternative calculation of how to measure the ease of doing business. We also examine how well the level of business infrastructure correlates with and predicts the Doing Business ease of doing business measure. We utilize ordinal logit to estimate our models. These techniques are specifically designed to preserve the ordinal nature of the dependent variable, the ease of doing business.

Results: Our results indicate that business infrastructure correctly identified 47% of the countries in our sample and were within 1 category for another 46%. Outliers only represented about 7% of all cases.

Conclusion: Our findings indicate that: 1) business infrastructure data may be just as good as complicated surveying techniques; 2) policies to foster corruption control, increase freedoms, improve education and health, reduce the size of government, increased globalization, and focus on the rural population will improve a country’s ease of doing business and; 3) business infrastructure tells us a lot about how easy it is to business in a country.