Business & Money

World Bank’s ‘doing business’ index flawed, misleading

By Abid Aslam | Last updated: Jul 1, 2008 - 12:43:00 AM

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WASHINGTON (IPS/GIN)—The World Bank’s in-house watchdog has decried the bank’s flagship effort to promote business-led economic growth as ideologically stilted and of little practical use.

At issue is the Doing Business Index, in which the bank’s private unit, the International Finance Corporation, ranks 178 countries on how conducive they are to private enterprise. Those that make it easiest to start and run a private enterprise, as measured by 10 indicators, earn the highest marks.

So flawed is the exercise, launched in 2004 as what the bank calls a major “knowledge product,” that one executive director at the lending agency has suggested that the new critique be included as part of the Doing Business report so users know not to take the rankings too seriously.

Even so, developing and former Soviet economies in particular have been performing legal and political contortions to improve their rankings, in hopes of boosting foreign investment and with the expectation—stoked by the bank—that increased business activity will translate into faster economic growth.

The bank’s Internal Evaluation Group, in a report released June 12, said the Doing Business survey is prejudiced in favor of deregulation. The survey also overstates its conclusions and shows “no statistically significant relationship” between its indicators and broader economic growth, much less improvements in national well-being, the report said.

If improved, the annual survey could prove a useful tool for sparking debate about the changes countries can make to spur the private sector, according to the Internal Evaluation Group. It cautioned against using the index of country rankings to make decisions about how to allocate resources, however—a view supported by some members of the bank’s executive board.