I POLICY RESEARCH WORKING PAPER 1759

# Summary findings

Case studies and anecdotal evidence have suggested that uncertainty about policies, laws, and regulations has hampered development of the private sector in many developing countries. Brunetti, Kisunko, and Weder present results from a new cross-country survey that provides comparable data on local investcors' problem in dealing with the state. The survey was conducted in 69 countries and covers more than 3,600 entrepreneurs.

The questionnaire asked 25 questions about investors' perceptions about such issues as the predictability of laws and policies, the reliability of the judiciary, corruption in bureaucracies, and security of property rights. It also asked about general obstacles to doing business and the quality of state-delivered services.

Brunetti, Kisunko, and Weder discuss their methodology and present many findings. Among them: - In less developed countries the majority of entrepreneurs constantly fear policy surprises and unexpected changes in rules that can seriously affect their business. Entrepreneurs in Asia have the most trust in government announcements of policy changes and changes in rules; entrepreneurs in the Commonwealth of Independent States are the most cynicai about new announcements; and half of businessmen surveyed in Latin America and Central and Eastern Europe do not believe government announcements.

* Entrepreneurs worldwide feel that the cost of doing business is substantially increased by theft and crime and in many developing countries the business community feels that authorities do not adequately guarantee their personal safety and do not reliably enforce their property rights.

* Unreliable judiciaries are perceived as major problems in many developing countries. This applies in particular to the Commonwealth of Independent States and to Latin American countries.

* Entrepreneurs in industrial countries perceived the greatest obstacles to doing business to be tax regulations and high taxes, labor regulations, safety or environmental regulations, financing, regulations for starting new businesses and operations, and general uncertainty about the costs of regulation.

Entrepreneurs in South Asia and Southeast Asia ranked the top obstacles to doing business as high taxes and tax regulations, inadequate infrastructure, inflation, labor regulations, and regulations for starting new businesses and operations.

* In the Middle East and North Africa, entrepreneurs considered lack of infrastructure the chief obstacle to doing business, followed by corruption, high taxes and tax regulations, and financing.

* In Central and Eastern Europe, high taxes and tax regulations were the only regulation-related obstacle ranked high, followed by financing, corruption, and inflation.

* The worst obstacles in Latin America were considered to be corruption and inadequate infrastructure, followed by crime and theft, problems with finance, and high taxes and tax regulation.

* In Sub-Saharan Africa the biggest problems were corruption, tax regulations and high taxes, inadequate infrastructure, inflation, crime and theft, and financing.

- This paper a product of the Office of the Chief Economist and Senior Vice President, Development Economics- was produced as a background paper for _World DevelopmentReport 1997_ on the role of the state in a changingworld. The study was funded in part by the Research Support Budget under the research projects "Cross-Country Indicators of Institutional Uncertainty" (RPO 680-51), and "Indicators of Government Quality as Perceived by the Private Sector" (RPO 681-52). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Michael Geller, room N7-078, telephone 202-473-1393, fax 202-522-0056, Internet address wdr@worldbank.org. April 1997. (75 pages)

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings_ **_out_** _quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World_ **_Bank,_** _its Executive Directors, or the countries they represent._ Produced by the Policy Research Dissemination Center