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How Business Is Done in the Developing World: Deals versus Rules

Author

Listed:
  • Mary Hallward-Driemeier
  • Lant Pritchett

Abstract

What happens in the developing world when stringent regulations characterizing the investment climate meet weak government willingness or capability to enforce those regulations? How is business actually done? The Doing Business project surveys experts concerning the legally required time and costs of regulatory compliance for various aspects of private enterprise—starting a firm, dealing with construction permits, trading across borders, paying taxes, getting credit, enforcing contracts, and so on—around the world. The World Bank's firm-level Enterprise Surveys around the world ask managers at a wide array of firms about their business, including questions about how long it took to go through various processes like obtaining an operating license or a construction permit, or bringing in imports. This paper compares the results of three broadly comparable indicators from the Doing Business and Enterprise Surveys. Overall, we find that the estimate of legally required time for firms to complete a certain legal and regulatory process provided by the Doing Business survey does not summarize even modestly well the experience of firms as reported by the Enterprise Surveys. When strict de jure regulation and high rates of taxation meet weak governmental capabilities for implementation and enforcement, we argue that researchers and policymakers should stop thinking about regulations as creating "rules" to be followed, but rather as creating a space in which "deals" of various kinds are possible.

Suggested Citation

  • Mary Hallward-Driemeier & Lant Pritchett, 2015. "How Business Is Done in the Developing World: Deals versus Rules," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 121-140, Summer.
  • Handle: RePEc:aea:jecper:v:29:y:2015:i:3:p:121-40
    Note: DOI: 10.1257/jep.29.3.121
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christian Volpe Martincus, 2016. "Out of the Border Labyrinth: An Assessment of Trade Facilitation Initiatives in Latin America and the Caribbean," IDB Publications (Books), Inter-American Development Bank, number 96856, February.
    2. Goel, Rajeev K. & Mazhar, Ummad & Nelson, Michael A. & Ram, Rati, 2017. "Different forms of decentralization and their impact on government performance: Micro-level evidence from 113 countries," Economic Modelling, Elsevier, vol. 62(C), pages 171-183.
    3. repec:idb:idbbks:7994 is not listed on IDEAS
    4. Ashantha Ranasinghe & Diego Restuccia, 2016. "Financial Frictions and the Rule of Law," Working Papers tecipa-554, University of Toronto, Department of Economics.
    5. World Bank, 2017. "Towards Privilege-Resistant Economic Policies in MENA," World Bank Other Operational Studies 27525, The World Bank.
    6. Rajeev K. Goel & Ummad Mazhar & James W. Saunoris, 2018. "Market Contestability and Bribe Solicitations: Evidence Across Stages of Firms' Operations," CESifo Working Paper Series 6981, CESifo Group Munich.
    7. Izak Atiyas & Ozan Bakis & Esra Ceviker Gurakar, 2016. "Anatolian Tigers and the Emergence of the Devout Bourgeoisie in the Turkish Manufacturing Industry: An Empirical Analysis," Working Papers 1064, Economic Research Forum, revised 11 2016.
    8. Breen, Michael & Gillanders, Robert, 2017. "Does Corruption Ease the Burden of Regulation? National and Subnational Evidence," MPRA Paper 82088, University Library of Munich, Germany.
    9. Jerónimo Carballo & Alejandro Graziano & Georg Schaur & Christian Volpe Martincus, 2016. "Endogenous Border Times," IDB Publications (Working Papers) 94638, Inter-American Development Bank.
    10. Jerónimo Carballo & Alejandro Graziano & Georg Schaur & Christian Volpe Martincus, 2016. "Endogenous Border Times," IDB Publications (Working Papers) 7685, Inter-American Development Bank.

    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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