Regulatory Reform

Back in January we looked at Mexico's innovative use of prizes to fight regulatory roadblocks. We then looked at how Mexico fares on the World Bank's Doing Business Survey. Unfortunately Mexico does not do very well, but the state has a tremendous amount of self-awareness and its response to its regulatory burdens has been generally impressive. With all this in mind, a skeptic might ask if the Doing Business Survey actually measures anything important. Put another way, do improvements in doing business indicators lead to improvements in poverty alleviation and unemployment? From the PSD blog:

Recent evidence from Mexico based on a matched difference-in-difference evaluation - not too different from a randomized evaluation - has found that reducing the number of days to register a business does make a significant difference in the business environment.

The results come from a recent World Bank study by Miriam Bruhn.* The results are summarized here. Employment increased by 2.8% in eligible industries after the reforms and incumbent firms, which had benefited from the barriers to entry, lowered their prices and saw their monopoly profits decline. More wage earners opened new businesses, but existing businesses outside the formal sector did not formally register with the government. The last point is a worrying sign in a generally upbeat report.

* Bruhn, Miriam (2008). “License to Sell: The Effect of Business Registration Reform on Entrepreneurial Activity in Mexico.” World Bank Policy Research Working Paper 4538.