Measuring ease of doing business in India’s sub-national economies: a novel index

Abstract

Purpose The purpose of this paper is to contribute to the literature by introducing a novel index that measures ease of doing business (EDB) at the sub-national level. The authors provide a comprehensive assessment of both de jure and de facto business conditions in 21 sub-national economies of India, with the help of a holistic framework that encompasses indicators capturing Attractiveness to Investors, Business Friendliness and Competitive Policies (ABC), the three broad environments that constitute the EDB–ABC index. Design/methodology/approach The authors’ index EDB–ABC index is constructed using 81 indicators. The index values reported are standardized scores and the framework is applied to 21 Indian sub-national economies. The bottom-up approach takes into account the various operational issues that firms face at the ground level, with the emphasis being on de facto issues. A unique feature of the index is its emphasis on collecting extensive survey data at the sub-national level, given that several constraints that businesses face lie under the purview of the sub-national governments. It also combines publicly available macroeconomic data through formal statistical publications. Findings The findings suggest a positive association between the proposed EDB–ABC index and competitiveness of as well as investments into Indian sub-national economies. In terms of explanatory power, the authors find that indicators capturing attractiveness to investors and business friendliness which are representative of de facto implementation issues at the sub-national matter more than de jure competitive policies. It is also striking that the results are in stark contrast to the existing doing business studies highlighting the importance of the comprehensiveness of the index. Originality/value Easing the impediments to doing business is a pre-requisite to enhance both domestic as well as foreign investments. Existing indicators on doing business provide an incomplete picture about the prevailing business conditions as the basis for such rankings are de jure regulations and not de facto. The authors depart from this tradition by dealing with both de jure and de facto business conditions using a combination of primary and secondary data at the sub-national level in India.

The evaluation of competitive position of EU-28 economies with using global multi-criteria indices

“…In this regard, the World Bank Group created the Doing Business Index (DBI) to report aspects of entrepreneurship business regulation. On the basis of DBI analysis, Tan et al (2018) suggested a new framework of index that encompasses indicators capturing attractiveness to investors, business friendliness and competitive policies. Findings confirmed that eliminating the barriers of doing business is a pre-requisite to enhance both domestic and foreign investments, as well as competitiveness of country.…”

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“…In [18], the authors state that the Transaction Costs that focus on construction activity tend to be higher in countries where procedures are more bureaucratic, decentralized, and little digitalized. The works [19,20] show that Transaction Costs influence companies' chances to grow. In [21], the authors state that both the absence and the excess of regulations increase Transaction Costs, impair domestic companies' operations, reduce the levels of domestic and foreign direct investment and slow down economic growth per capita.…”

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“…The authors of the EDB-ABC index (Tan et al, 2018) contend that changes in the rankings of the subnational economies at the top and bottom tiers are unlikely in the near term, although some movements in the ranking of the subnational economies ranked in the middle tier can be expected due to small margins in terms of score differences. Similarly, Mundle et al (2016) argued that the strong legacy effect of past development have resulted in large per capita income differences among states, which impact their social service delivery.…”

“…The authors of the EDB‐ABC index (Tan et al., 2018) contend that changes in the rankings of the subnational economies at the top and bottom tiers are unlikely in the near term, although some movements in the ranking of the subnational economies ranked in the middle tier can be expected due to small margins in terms of score differences. Similarly, Mundle et al.…”