During the global financial crisis we observe an increase in the poverty headcount in a number of lowincome and lower-middle-income economies. For example, the average poverty headcount ratio at $1.90 in low-income countries increases 11 percentage points — from 48.6% in 2009 to 60% in 2013. Some middleincome countries, including Croatia, Georgia and Romania in Eastern Europe and Honduras and Panama in Central America, experienced a significant increase in the poverty headcount.

We use the World Bank’s data on new business formation to investigate the channel through which business regulation may affect poverty. These annual data are collected from 143 company registrars on the number of newly registered firms. New business entry is defined as the number of newly registered corporations per 1,000 working-age people (those ages 15–64). The units of measurement are private, formal sector companies with limited liability. Data extend from 2005 to 2015.

As proxy for the regulatory attitude of governments, we use the World Bank’s Doing Business data, first published in 2003. The methodology for data collection is described in Djankov et al. (2002) and updated in Djankov (2016). We use the Doing Business data in two ways. First, we employ the overall score, which combines 10 distinct groups of measures that constitute the Doing Business index. These relate to the legal protections and regulatory processes that an average private business needs to go through in order to operate (Table 1).

Second, we use measures in four areas – starting a business, acquiring licenses, getting credit and enforcing contracts – as specific measures of business regulation. All measures are positively correlated, with the correlation ranging between 0.1810 and 0.7430, with low correlation between contract enforcement and acquiring licenses and high correlation between getting credit and the total aggregate _Doing Business_ measure. Property registration has the highest correlation with contract enforcement (0.4947) and lowest with acquiring licenses (0.2240). All measures are negatively correlated with the poverty headcount. GDP per capita is also negatively correlated with the poverty headcount, as expected.

Government expenditure is the general government expenditure as a share of GDP, constructed by the International Monetary Fund. Among the countries with highest expenditure levels are the Pacific Islands states of Kiribati and Marshall Islands, as they receive financial support from international institutions and donors. Belgium, Denmark, Finland, and France are among the biggest spenders globally, with an average expenditure of more than 50% of GDP in the period 2004–2015. They are also among the countries with highest health and education expenditure. Conversely, Bangladesh, the Central African Republic and Nigeria are the countries with least government expenditure. We further use government expenditure on education and government expenditure on health as more precise measures related to the poverty headcount.

The quality of health care is proxied by the mortality rate of adult females (per 1,000 female adults), and alternatively by infant mortality. Lesotho, Eswatini, and Zimbabwe are among the countries with the highest mortality rates of adult females, whereas the Republic of Korea, Japan, and Spain are among the countries with the lowest rates.

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