“Doing Business functions as a kind of cholesterol test for the regulatory environment for domestic businesses. A cholesterol test does not tell us everything about the state of our health. But it does measure something important for our health. And it puts us on watch to change behaviors in ways that will improve not only our cholesterol rating but also our overall health.” The DB reports thus help governments gauge the ‘health’ of their regulatory regime and provide them with a starting point for reform. Yet it is important to bear in mind that the indicators are only a partial, bird-eye representation of the regulatory system: they do not capture it fully. They are like a sample of regulations, selected to make inferences about the quality of the entire system.

This is an important insight for reformers: measures specifically targeted at improving individual indicators invalidate the sample, as it will no longer be ‘randomly drawn’ from the population (where the population is the whole set of national business regulations). Thus, by only addressing individual indicators, without taking into account the regulatory system as a whole, the ‘enabling environment’ may only be marginally improved. To illustrate this, it helps to focus on an important part of the business environment that is not fully captured by the DB reports but an important part of the investment climate, especially in many African countries: land. If land legislation limits access to land by, for example, prohibiting expansions of cities or land ownership by foreigners, a country can be first in the DB ranking but will not experience as many start-ups or expansions as it could if it took into account the availability of commercial land. Another example is operational cost which may be a significant constraint to doing business but is not captured by the DB studies.

Indeed, in some areas, the relative importance of specific components of the indicators is contested Letting the emphasis of reform be determined by the DB ranking can curtail reform efforts in areas that are not captured by the DB reports but may be more important to businesses. Arruñada (2007), for example, provides examples from Peru where the emphasis on reducing the initial cost of incorporation – captured by the ‘Starting a Business’ DBI – shifts attention away from the importance of business registers as an important source of reliable information. This, he argues, can eventually be detrimental to the economy as a whole. It is important to bear in mind that the prescriptive power of the DB reports for policy reform is thus limited.

For policy-makers that do choose to use the DB studies as the basis for reform, there is little to determine which specific DBIs to address when trying to improve the investment climate. The World Bank has established a DB Reform Team which helps governments that request assistance to identify and implement reforms that can improve the DB ranking. This team complements the DB Team which is tasked with constructing these indicators by sending out surveys to a number of experts in the countries whose individual evaluations the DB rankings will eventually be based on.<sup>1</sup> Yet there are ‘Chinese Walls’ between the DB Team and DB Reform Team. Indeed, as addressing individual indicators distorts the ‘sample quality’ of the DB ranking this strict separation is not unreasonable. However, in terms of practicality for governments there is a missing link between ranking and reforms: given limited time and resources, which reforms should a government prioritize? This paper proposes three ways of thinking about DB-related regulatory reform, based on the following:

- 1) Feasibility 2) Visibility

- 3) Impact

> 1 The names and contact details of the DBI contributors in each country are listed on the DBI website.

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