Indicators for investment and business climate (GSDRC Helpdesk Research Report)

Abstract

Query

Identify and summarise indicators used to indicate improvements in overall business environment, e.g. improvement in property rights, rule of law etc. Where possible, identify strengths and weaknesses, and the indicators most suitable for measuring improvements in fragile states.

Key findings

There are many indicators available that can be used to indicate improvements in the business environment. Some indicators focus on the microeconomic, business-focused factors, while others concentrate on the macroeconomic and policy factors. In addition to indicators with an explicit focus on business and investment climate, there are also indicators, such as governance and corruption indicators, which can provide information on factors which are likely to impact business climate, but may be overlooked by standard indicators.

In general, no single approach is better than the others and it is not feasible to develop a methodology that could generate all the information needed for all types of investment climate policy analyses. When looking at specific indicators, it is important to assess how well the indicator lends itself to analysis across different time periods. Several indicators were primarily designed to allow cross-country comparison, and consequently, work poorly when comparing different time periods. It is also important that indicators fully capture all relevant factors. Many business climate indicators overlook social and political risk, which are factors especially pertinent in fragile and conflict-affected states.

In general, the World Bank Doing Business index seems to be the most widely used and well regarded index of business climate. The index includes a ranking which provides comparisons across different countries, though some have criticised this ranking as being largely inaccurate. Focus is on laws and regulations; a more comprehensive picture may be provided through indicators such as the World Bank Enterprise Surveys which are based on firm experiences. For a quick overall picture of business investment climate, most suitable tools might be the World Bank Business Environment Snapshots or the ACP/ECOWAS BizClim. It may also be worth designing a unique tool that aggregates data from different indicators tailored to a specific policy or programming objective.

Citation

Rao, S. Indicators for investment and business climate (GSDRC Helpdesk Research Report). Governance and Social Development Resource Centre, University of Birmingham, Birmingham, UK (2012) 12 pp.

Indicators for investment and business climate (GSDRC Helpdesk Research Report)

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