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Business Licensing: A Key to Investment Climate Reform

Author

Listed:
  • Lili Yan ING

    (Economic Research Institute for ASEAN and East Asia (ERIA) and University of Indonesia)

Abstract

Reforming business licensing is a key starting point for improving the investment climate. Complex licensing procedures may encourage firms to remain unregistered, giving rise to difficulties later in accessing finance from formal financial institutions and constraining productivity and expansion. Across sectors, this can suppress the establishment of new firms and therefore the creation of new jobs, dragging down overall economic growth. Improving and reforming business licensing can significantly increase the number of businesses and thus help nurture employment creation. Several quick-win interventions are possible. First, there is a need to improve the quality of the business licensing website and help desk. The website and help desk should act as a frontline in dealing with investment regulations and policies for investors. Improvements should cover both hard and soft infrastructure of the website and help desk, including the skills of officials. Second, business license simplification should be continued by limiting licenses to those that serve their objective and cutting unnecessary licenses, and or consolidating licenses. Third, full implementation of electronic application and payment systems for business licenses should be fostered, together with increasing the nonfiscal incentives for firms to become registered. The registration system should also function as a nationwide database which could then be a source of reliable information both on firms and for firms, linked to government programs and grants, and business regulation updates. Fourth, a transparent system to show the progress of each business application should be set up, together with a recorded evaluation system in which users can provide feedback to improve the system. Finally, efforts in the medium term should focus on improving coordination among government agencies and clarifying the roles of central and local regulations, both horizontally and vertically

Suggested Citation

  • Lili Yan ING, 2015. "Business Licensing: A Key to Investment Climate Reform," Working Papers DP-2015-05, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2015-05
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    References listed on IDEAS

    as
    1. Miriam Bruhn, 2011. "License to Sell: The Effect of Business Registration Reform on Entrepreneurial Activity in Mexico," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 382-386, February.
    2. Suresh de Mel & David McKenzie & Christopher Woodruff, 2013. "The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 5(2), pages 122-150, April.
    3. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Investment Indonesia; Business; Licensing; Economic Reform;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

    NEP fields

    This paper has been announced in the following NEP Reports:

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