World Bank Doing Business Database

The World Bank “Doing Business” database provides “objective” measures of business regulations and their enforcement, aimed at quantifying the regulatory costs of businesses in 155 countries. That is, the questions asked of respondents relate to observable phenomenon, rather than asking for the opinions of respondents (as in the IMD and WEF Executive Opinion Surveys).[9] New Zealand was ranked 1^st on their overall index in 2005. The summary index is the simple average of the following 10 sub-indexes (New Zealand’s ranking is given in brackets beside each category):

1. Starting a business (4^th)

2. Dealing with licenses (2^nd)

3. Hiring and firing (4^th)

4. Registering property (1^st)

5. Getting credit (7^th)

6. Protecting investors (1^st)

7. Paying taxes (16^th)

8. Trading across borders (15^th)

9. Enforcing contracts (4^th)

10. Closing a business (21^st)

The components of these sub-indices are set out in Figure 4 below.

Figure 4: Breakdown of the World Bank's "Doing Business" Factors

 

OECD cross-country product market regulation surveys

The OECD conducted a survey of several types of regulation in OECD countries in 1998 (Nicoletti et al 2000), and updated it in 2003 (Conway et al 2005). The 1998 survey included 21 OECD countries while the updated 2003 report included all 30 OECD countries.

The OECD also produces “objective” measures of regulation for OECD countries. That is, the indicators are not based on opinion surveys and do not incorporate information about market outcomes. Rather, their survey focuses on assembling the details of governmental regulation, i.e. the questions ask if regulations exist in the country as opposed to getting respondents to rank regulations according to how much they affect the economy. This survey data makes up 90% of the information summarised by the indicators.[10]

Their summary indicators aim to measure the degree to which policies promote or inhibit competition, in areas of the product market where technological and market conditions make competition viable.[11] Their overall indicator is made up of 156 economy-wide (regulations that affect all or most sectors of the economy equally) or industry-specific regulatory provisions, which are averaged using weights determined by principal component analysis into the sub-factors and factors shown in Figure 5 below. The industry-specific information was gathered with particular emphasis on the analysis of service activities, as they have traditionally been highly regulated.

Figure 5 – Breakdown of the OECD Product Market Indicator

As well as looking at economic regulations, the OECD also included administrative regulations. Administrative burden is defined as the costs involved in obtaining, reading and understanding procedures and regulations, developing compliance strategies and meeting mandated reporting requirements, including data collection, processing and storage. New Zealand ranked 10^th on the administrative regulation index in 2003 (down from 7^th in 1998).

New Zealand ranked 7^th out of the OECD countries for the overall product market regulation indicator (down from 5^th in 1998), 6^th for the ‘State control’ factor, 8^th for the ‘Barriers to entrepreneurship’ factor, and 16^th for the ‘Barriers to trade and investment’ factor (up from 19^th equal in 1998). From 1998 to 2003, New Zealand experienced an increase in the scope of the public enterprise sector (dropping from a rank of 2^nd with a score of 1.5, to 6^th equal with a score of 2.3), and also an increase from a score of 2.0 to 2.6 in the ‘Direct control over business’ factor, dropping from 13^th to 20^th equal.

The dispersion of regulatory practice—that is, the degree to which regulations within a country vary in aims with respect to promoting competition—has declined between 1998 and 2003 for most OECD countries (measured by the variance of the 16 low-level indicators within a country) (Conway et al. 2005). A declining variance means that regulations within a country are becoming either more liberal, or more restrictive. So, regulatory practice is more consistently focused towards either restriction or liberalisation. A higher variance indicates inconsistency. So, a country with regulations that lowered barriers to entry across all industries would have a low variance, as would a country that raised barriers to entry across all industries. On the other hand, a country that lowered barriers here, but raised them there, would have a high variance.

According to the OECD survey, New Zealand has adopted more varying regulations between the survey periods, as have Turkey, Mexico, Poland, and Spain. For these countries, to the extent that complementarities exist between policy areas, there is a danger that the potential benefits of recent product market reforms may be reduced given ongoing restrictions in other areas (Conway et al 2005).

However, New Zealand has remained (since 1998) in the group of countries labelled “relatively liberal” by the OECD, which also includes the United Kingdom, Australia, the United States, Canada, Iceland, and Denmark. This grouping is based on confidence intervals constructed around the overall product market indicator, which is discussed in the next section.

The range of values taken by the indicators across countries is narrower than the initial 0 to 6 scale on which the individual regulatory provisions were ranked. Although this is partly due to the aggregation effects, the important policy implication is that relative to a worst case scenario, the subset of OECD countries considered (the 21 OECD countries included in the 1998 report) appears to be comfortably placed (according to Nicoletti et al 2000).

The 1998 report (the first survey conducted by the OECD) also included employment protection legislation, but the 2003 report does not include these. The OECD indicators also do not include data on the regulation of professional services, antitrust policy, and financial market regulation. They also ignore other important regulatory areas such as environmental and health and safety regulations.