Ease of Doing Business and Economic Growth

Abstract

Using panel data for 155 countries obtained from the World Bank’s Doing Business report for 2006 to 2016, I estimate the impact of ease doing business on the growth rate of GDP per capita. The study also considers other business climate factors and out-of-steady-state dynamics in its model specifications by including the Worldwide Governance Indicators (WGI) and the lagged value of log GDP per capita as additional explanatory variables. I obtain key evidence that the ease of doing business has an overall statistically significant effect on the annual growth rate of GDP per capita. However, the estimated coefficients of the Doing Business indicators for the full sample are statistically insignificant with no effect on the annual growth rate of GDP per capita, while the indicators for the subsamples have a statistically significant effect. Furthermore, when the dataset is subdivided based on country income group classifications the results were found to be mixed, with some indicators suggesting a negative relationship with the per capita GDP growth rate. Hypothetical predicted growth rates for 2006 calculated using the Doing Business indicators for 2016 suggest that in some countries, improvements in the ease of doing business have indeed contributed to economic growth. The results provide support for the claim that the ease of doing business is an important factor for economic growth, but that the effect varies across groups of countries.