Why improving on World Bank’s Ease of Doing Business rankings might have hurt economies

Source: The post is based on the article “Why improving on World Bank’s Ease of Doing Business rankings might have hurt economies” published in The Indian Express on 25^th May 2023.

Syllabus: GS 2 – Important International Institutions

Relevance: concerns with the World Bank’s Ease of Doing Business Index

News: The article explains the controversies and concerns associated with the World Bank’s Ease of Doing Business Report.

About World Bank’s Ease of Doing Business Index

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What were the controversies with the World Bank’s Ease of Doing Business (EoDB) Index?

It was originally assumed that the ranking was based on many academic papers that studied these rankings and the economic performance of countries around the world.

It was also assumed that the improvements in Doing Business had a positive impact on the GDP of a country.

However, these rankings did not accurately reflect the reality in many nations and could be easily manipulated by governments.

For instance, India’s rankings were based on data from just two cities — Mumbai and Delhi. However, the situation of EoDB in the nearby cities was somewhat different.

Further, India ranks shot up among the top 50 in the World Bank’s EoDB rankings in 2018. The jump was despite the fact that India’s GDP growth was suffering a sharp slowdown, leading to record unemployment.

These all issues raised concerns over WB’s EoDB.

Read More: The end of Ease of Doing Business Rankings: Reasons and implications – Explained

What were other concerns with WB’s EoDB?

A research paper found that the improvements in the EoDB rankings had a negative impact on a nation’s GDP. This was contrary to the earlier assumption which thought an improvement in the rankings would boost GDP.

A negative impact on a nation’s GDP was due to the fact that developing countries had more focus on the Doing Business score rather than implementing substantial reforms for their economy.

Further, most of the earlier research looked at rankings instead of the country’s scores on which these rankings were based.

However, the ranks did not accurately capture the improvement in the economy because ranks are relative and a country could rise or fall sharply despite not having improved as much, or at all.

For example, New Zealand was ranked first for ease of doing business in the 2020 report with a score of 87.01. If New Zealand’s score had fallen by 5, its rank would have dropped by 9 places.

In contrast, Sri Lanka was ranked 99th with a score of 61.8. If Sri Lanka’s score had fallen by 5, its rank would have dropped 26 places.

Hence, there were many problems with WB’s EoDB index. Due to which, it was suspended by the World Bank.