Weak governance is not always a bad thing

In a very cool paper, ¬†Mary Hallward-Driemeier and Lant Pritchett show that the WB’s “doing business” rankings (which are derived from surveying experts about legal requirements) are¬†almost uncorrelated with what actual business people report their experiences to be.

The doing business rankings often show very long time periods for things like getting a construction permit, or a business license, or importing materials in poor countries. Call this the De Jure measure based on the regulations on the books.

However, many of these same countries “suffer” from weak governance and low control of corruption, and it turns out that the median time entrepreneurs report to accomplish these activities is often dramatically shorter. Call this the de facto measure, derived from the “enterprise surveys” of actual businesses.

In other words, when laws/regulations are bad, lack of enforcement can be good.

In other other words, The WB rankings on ease of doing business may well be seriously flawed.