requirements are associated with greater corruption. Typically, the analyses suggest this to be the case. We explore this further by confronting the DB data with data from the ES.

It is clear that what is “on the books” need not be the way the world actually works. In fact, the claim of the DB project is not to characterize the way the world works, but to characterize what governments make – regulations in this case. Where, for example, complex regulations lead to lengthy procedures firms may have an incentive to pay “speed money” to cut through the process. The 150 days it took in Sao Paolo, Brazil, until 2009 to register a business the official way, was not a good predictor of the actual time taken, for example. “Facilitators” would help firms get registered much faster. Still the market for facilitation was created or sustained by regulation. The impact of official regulation cannot be determined by measuring whether people behave in accordance with the law, but by whether and how they respond to the law.

Doing Business complements the above mentioned enterprise surveys (ES) that capture the world as experienced by firms. The ES were expanded to cover not only Africa, Eastern Europe and Central Asia and a few extra countries, where they originated, but also other regions. Contrary to DB the ES are not available every year for all the countries covered. Nevertheless it is now possible to start confronting the data about official regulation with actual practice using panel data sets.

Hallward-Driemeyer and Pritchett (2010) have recently explored in detail the difference between data on official requirements for business registration, construction licenses and import licenses with the actual time to obtain these licenses. They found complex relations between the two data sets.<sup>2</sup> What seems to be the case is that as official requirements become more burdensome, some firms are able to cope much better than others. For example, an increase in official time from 77 to 601 days for construction licenses is associated for some firms with an actual increase of just 3 days whereas for others it meant 130 extra days. The authors also find that for relatively simple regulations there is an association between official and actual time taken. It seems, when the law is simple, people follow it. When it gets complicated, firms find ways around it.

We assess whether corruption as reported by the ES can help explain the difference between official and actual time taken. The ES ask firms for each the three permits and the electricity connection that we look at “whether an informal gift or payment was expected or requested”. For each country we constructed a percentage of firms that answered with “yes”. We then correlated this percentage with the official and actual time required to get the permit or connection. We controlled for country characteristics (GDP level and GDP growth, the level of crime and the ranking on the DB enforcement of contract indicator) and for firm characteristics (ownership - privately or state-owned and proxies for the quality of the firm (share of export in sales and experience of top managers).

> 2 Part of this may be due to the fact that firms asked how much time it takes to obtain an operating license may not have recent actual experience with this.

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