Insights from the Foreign Direct Investment Regulations Indicators of the World Bank Group

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The joint International Finance Corporation (IFC) and World Bank department focusing on Global Indicators & Analysis has developed sophisticated indicators (accessible online (1)), which are recognized and used within the World Bank Group and very broadly externally by organizations worldwide. Several projects have been developed, including the flagship product Doing Business, which focuses on domestic small and medium-size companies throughout their life cycle and provides quantified and comparable measures of the relevant business regulations and their enforcement. This product ranks 183 economies globally and is published annually since 2002. The Subnational and Regional Doing Business Reports follow the Doing Business methodology and capture differences in business regulations and their enforcement across locations in a single country or region. In that respect, they also rank each location. The Enterprise Surveys focus on company-level data in emerging markets and developing economies and benchmarks the quality of the business and investment climate across countries. They reach out to more than 130,000 firms in 125 countries but do not rank countries. The Foreign Direct Investment Regulations Indicators initiative (formerly named Investing Across Borders) focuses on regulations related to foreign direct investment around the world and presents quantitative indicators on economies' laws, regulations, and practices affecting how foreign companies invest across sectors; start businesses and access industrial land; hire skilled expatriates; convert and transfer currencies; and arbitrate and mediate their commercial disputes. It does not rank countries. Finally, the Women, Business and the Law Report presents indicators based on laws and regulations affecting women's prospects as entrepreneurs and employees in order to inform research and policy discussions on how to improve women's economic opportunities and outcomes. It does not rank countries either.

All these indicators present different characteristics and have different purposes and angles of analysis. However, they all correspond to what an indicator is generally understood to be--a tool to translate a reality on the ground in a given country into a numerical representation, with implicit references to some particular standards. Indicators simplify the reality, make it understandable and comparable across countries, and sometimes offer the possibility to score and rank countries. They are widely recognized and used, as they contribute to greater transparency in providing accessible, understandable, and comparable data, and as they operate as an accountability mechanism and a measure of compliance with laws and regulations. Their costs have also been pointed out, in particular the risk that they can become an end in themselves, that they can mask discrepancies by over-simplification and on the basis of a methodology that could be criticized (critics have notably addressed the fact that the number of contributors is never statistically significant or the fact that there might be an inherent bias of individuals willing to contribute--either because they are very angry or very supportive of the current situation in their country).

However, to look at whether indicators are valuable and should be regulated, one would also need to look at how these indicators are actually designed. In that respect, the methodology adopted at the Global Indicators & Analysis Department is straightforward. For example, in the Foreign Direct Investment Regulations Indicators initiative we first design a survey and consult our experts. Then we define our scoring methodology: we score most of our legal questions and our practice questions (in particular, questions on the time, length, and costs of proceedings are usually scored). Then we select our contributors and send them our surveys. Once we receive the completed surveys, we analyze the data (which includes following up with contributors and conducting research), and prepare either a report or an analytical piece. …