International Workshop

Lima, Peru—May 15th-16th, 2007

Countries with better regulations grow faster. As part of the overall discussion on the role of government vis-à-vis private sector, donor support for small businesses has switched from an emphasis on financing  to emphasis on improving the business environment. In fact, since the 1990s, many transitional and developing economies, together with international and local organizations, have started to find ways to foster an enhanced business-enabling environment. These projects have been mostly focused on improving the process for obtaining registration or operating licenses that allow private firms, especially micro, small and medium ones, to function formally in the local markets. Recent research by the World Bank shows that moving from the worst quartile of business regulations to the best implies an additional annual growth increase of about 2 percentage points .

However, the question of the long-term impact of these reforms remains unanswered. Do these improvements result in a long-term benefit for the businesses that adopt them? Do they improve the business prospects in the areas where these improvements are adopted? Are there any impacts on those employed by these businesses?

The International Development Research Center (IDRC), the International Finance Corporation (IFC) and the Consorcio de Investigación Económica y Social (CIES) share a common interest in developing a methodology to answer these questions. The issue is particularly relevant as many countries in Latin America and the Caribbean, as well in other regions, are undertaken these kind of reforms at sub-national level.

Research on impact evaluation, based on firm-level panel data would help address the knowledge gap. These studies would measure and track firm performance in jurisdictions where enterprises face simplified licensing environment to infer the impact and other benefits of these business-environment improvements. Research should carefully consider the use of control groups of enterprises to tease out the impact of formalization such as proper business registration, use of operating licenses, use of formal banking services and adoption of health standards, among other regulations. Moreover, these studies would allow comparing different jurisdictions at different levels of business formalization, providing another dimension of impact. The results from research by local institutions on impact evaluationw ould provide policy makers in central and sub-national governments and donors with knowledge about what other rules and regulations should be targeted so as to increase the long-term impact of interventions affecting the operations of private businesses.

Objective

To review and discuss different approaches to measure the impact of business simplification and to discuss a common approach applicable to Latin America and other regions.