system. This paper will thus also examine whether _improvements_ in a country’s DB rankings enhance economic performance.

# **3. Data and Methods**

Variable selection for the analysis below generally follows Djankov _et al._ (2006), yet the data are drawn for a more recent time period, from 2003 to 2009, and a number of additional variables will be used. The dependent variable to be used in the analysis is annual per capita growth in real Gross Domestic Product (GDP), averaged over 5 and 15 years. These averages will be calculated over the previous years (i.e. time _t_ to _t-5_ and _t_ to _t-10_ ). To estimate the effect of DBI reform on growth, averages will be calculated for the subsequent four years (i.e. _t_ to _t+4_ ). Only four years can be included in the average due to data availability. GDP data were obtained from the World Bank’s _World Development Indicators_ .

The key independent variables are all based on the DBI rankings, with data obtained from the _Doing Business_ website. The following variables will be used (c/f table 1): the annual aggregate DBI ranking based on the nine individual DB rankings from ‘Starting a Business’ to ‘Closing a Business’; the individual indicator rankings themselves; and annual changes in the subcomponents of the individual rankings (including procedure, time, cost, and legal strengths). All rankings are based on the percentile positions of each individual country. In accordance with the _Doing Business_ methodology all rankings will be normalized to vary between zero and one, using the formula _[(Ri-Rmin/Rmax-Rmin)],_ for ranking _R_ and country _i_ .

Where individual indicators are aggregated, simple averages will be used, thus replicating the DB rankings (however, the analysis departs from the published rankings by consistently excluding the ‘Employing Workers’ indicator).

Annual changes in the subcomponents of the individual indicators are calculated in accordance with the _Doing Business_ ‘change scores ‘ (World Bank, 2011:112): first absolute annual changes on each subcomponent are calculated and these changes are, again, normalized to vary between zero and one. Then, the indicators are rescaled, such that a higher value always corresponds to an improvement in the investment climate.<sup>8</sup> The indicators are rescaled once more to ensure that a value of zero indicates that no change was made, whilst negative values indicate a worsening and positive values an improving regulatory environment.

The DBIs are developed from surveys which are sent out to experts and lawyers in each country included in the ranking around April of each year. The results are then summarized in Doing Business Reports in the next year. Thus, for example, data for the Doing Business Report 2011 were obtained in 2010. Accordingly, for the analysis all DB data are matched with the years they were collected in.

The choice of control variables is based on Djankov _et al._ (2006) but with a view to maximize country coverage. Key controls will thus include: the deviation from the average GDP deflator and initial log GDP per capita (this follows Djankov _et al.,_ 2006 who in turn build on Barro, 1991). These data were obtained from the _World Development Indicators._ In addition, a variable for civil conflict will be included. Data are

> 8 For example, increasing the number of procedures to start a business is associated with a _worse_ investment climate whilst larger credit bureau coverage is associated with a _better_ investment climate. The normalized index is adjusted in a way that a larger value always implies an improvement.

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