Business Environment Indicators - CESifo Group Munich [PDF]

the business environment of a country. Several indi- cators measure this factor including the Global ... intend to measure the business environment, albeit from a different perspective and with a different ... Global Competitiveness Report 2011-. 2012, http://www3.weforum.org/docs/WEF_GCR_2011-12.pdf, accessed 23 ...

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Idea Transcript


Database

BUSINESS ENVIRONMENT INDICATORS

es 10 economic freedoms that are grouped into four broad categories and have equal weight: rule of law, limited government, regulatory efficiency and open markets. The index is mainly based on a variety of other indicators (including the World Bank’s Doing Business Ranking). Moreover, qualitative information is converted into quantitative measures, as is the case with as for trade restrictions. Finally, some components, especially fiscal and macroeconomic variables, are calculated from basic economic figures.

A crucial determinant of prosperity and growth is the business environment of a country. Several indicators measure this factor including the Global Competitiveness Index (GCI) of the World Economic Forum, the Doing Business Ranking of the World Bank and the Economic Freedom Index of the Heritage Foundation. All three indicators intend to measure the business environment, albeit from a different perspective and with a different methodology. The indicators are also presumed to be closely linked to the economic performance of a country.

Table 1 compares the 2012 rankings of the three indicators for the countries covered by the DICE database (mainly EU-27 and the other major OECD countries). According to the GCI Switzerland, Sweden, Finland, the United States and Germany are the most competitive countries. In the World Bank’s Doing Business Ranking New Zealand, the United States, Denmark, Norway and the United Kingdom fare best. The Economic Freedom indicator portrays Australia, New Zealand, Switzerland, Canada and Ireland as the countries with most freedom. Interestingly, all indicators agree that certain countries like the United States and the United Kingdom are highly competitive, and other countries like Greece and most Eastern European countries do not offer favorable business conditions. At the same time, the differences in the factors measured by the different indicators play a crucial role for other countries and imply strikingly distinct outcomes. For example, countries like Sweden and Germany that perform well under the GCI and the Doing Business Ranking are downgraded by the Economic Freedom Index, which penalizes high tax countries. Similarly, a country like Switzerland, which is among the top countries according to the GCI and the Economic Freedom Index, is obviously highly regulated and therefore only ranges at a middle position in the Doing Business Ranking.

The GCI defines competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country. It comprises institutions, infrastructure, education, health, innovation and the efficiency of goods, labor and financial markets. The GCI is mainly based on an annual survey of business executives and thus presents a qualitative picture of each country’s economic and business environment. Additionally, other indicators or macroeconomic data play a role in determining each country’s ranking. The indicator is divided into three sub-indexes ranging from basic requirements to sophistication factors and the weight of these sub-indexes varies across countries depending on the actual development stage. The Doing Business Ranking of the World Bank focuses on the quality of laws and regulations affecting local business, in particular small and mediumsized companies. It is based on the responses of local practitioners who evaluate standardized case scenarios. These comprise several areas of business regulation related to the life cycle of a hypothetical company ranging from start-up and expansion, to operation and finally insolvency. In doing so, the assessment particularly focuses on property rights, access to credit investor protection, administrative burden and flexibility in hiring. As a result, the indicator focuses attention on tangible legal components and does not measure all aspects of the business environment.

M.D.

References Heritage Foundation (HF), Index of Economic Freedom (http://www.heritage.org/index/explore), accessed 23 February 2012. The World Bank Group, Doing Business, http://www.doingbusiness.org/CustomQuery/ (accessed on 20 October 2011).

The Economic Freedom Index measures the degree individuals are free to work, produce, consume and invest in any way they please. The indicator compris-

World Economic Forum, Global Competitiveness Report 20112012, http://www3.weforum.org/docs/WEF_GCR_2011-12.pdf, accessed 23 February 2012.

77

CESifo DICE Report 1/ 2012

Database Table 1 Comparison of business environment country rankings Doing Business Index

Economic Freedom Index

Switzerland

New Zealand

Australia

Sweden

United States

New Zealand

Finland

Denmark

Switzerland

United States

Norway

Canada

Germany

United Kingdom

Ireland

Netherlands

Iceland

United States

Denmark

Ireland

Denmark

Global Competitiveness Index

Japan

Finland

Luxembourg

United Kingdom

Canada

United Kingdom

Canada

Sweden

Netherlands

Belgium

Australia

Estonia

Norway

Germany

Finland

Austria

Japan

Cyprus

France

Latvia

Sweden

Australia

Macedonia

Japan

Luxembourg

Estonia

Lithuania

New Zealand

Switzerland

Germany

Ireland

Lithuania

Iceland

Iceland

Belgium

Austria

Estonia

France

Czech Republic

Spain

Portugal

Spain

Czech Republic

Netherlands

Belgium

Poland

Austria

Norway

Italy

Slovenia

Macedonia

Lithuania

Cyprus

Hungary

Portugal

Spain

Malta

Cyprus

Slovak Republic

Slovak Republic

Hungary

Luxembourg

Latvia

Malta

Hungary

Bulgaria

Slovenia

Bulgaria

Romania

Turkey

Poland

Poland

Montenegro

Czech Republic

France

Latvia

Turkey

Portugal

Slovak Republic

Romania

Slovenia

Bulgaria

Croatia

Montenegro

Romania

Italy

Turkey

Croatia

Greece

Croatia

Macedonia

Italy

Greece

Greece

Source: World Economic Forum, World Bank and Heritage Foundation.

CESifo DICE Report 1/ 2012

78

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