ICTs, Business Regulation and Economic Development : A Cross-country Examination

Government regulation of business activity has been recognized as having critical impact on countries economic development. The aim of this research is to empirically explore the role played by information and communication technology (ICT) on the regulatory environment for doing business at the country level. We expect that the greater the access to information, the better the regulatory framework for doing business which can in turn have a positive impact on economic performance. Further, we intend to assess the extent to which ICT measures mediate the effect of business regulation on countries’ economic performance as measured by GDP per capita. This undergoing research is based on empirical evidence from two databases of the World Bank namely the Doing Business Database and the World Development Indicators database both of which had their most recent release in September 2008. Preliminary results using data corresponding to the year 2005 support our hypotheses. INTRODUCTION Government regulation of business activity has been widely recognized as having critical impact on countries’ economies. This realization has led many countries to engage in great efforts to implement regulatory reforms intended to expedite and simplify their existing frameworks of business regulation, in fact as many as two hundred regulatory reforms were introduced in 98 countries between April 2006 and June 2007, which mainly involved reform of entry regulations (Worldbank Doing Business Report 2008). International Development institutions have been Proceedings of SIG GlobDev’s First Annual Workshop, Paris, France December 13 2008 SIMPSON ICTs, Regulation and Development: Cross-country Examination strong advocates of regulatory reform and have developed specific measures to assess and monitor the regulatory business environment at the country level. Among these, the Doing Business Project (www.doingbusiness.org) launched in 2003 by the World Bank developed a database of indicators that is used to compute an “Ease of Doing Business” (EDB) index for 175 countries. The Doing Business database is enhanced and updated every year to track and analyze objective measures of business regulations in ten different areas, namely: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. The EDB index is a synthesized measure of regulation of business activity at the country level based on indicators from all ten areas. Once computed, the index is used to rank countries in ascending level, with an index of one meaning friendlier regulatory environment. Multiple studies have used the Doing Business Database to scrutinize the linkages between business regulation and other economic variables like economic growth (Brandt, 2004; Djankov, Jalilian, Kirkpatrick and Parker, 2006; McLiesh and Ramalho, 2006; Hasan, Mitra and Ulubasoglu, 2007), size of the informal sector (Loayza, Oviedo and Serven, 2005) and entrepreneurial activity (Klapper, Laeven and Rajan 2006; van Stel, Storey and Thurik, 2007). However, less attention has been paid to what specific factors account for the wide variation observed in business regulation across countries. Particularly, we consider that one of the critical factors affecting a country’s ease of doing business is the availability of information and communication technology (ICT) infrastructure that can support the automation and simplification of regulatory procedures. Countries cannot maintain an adequate level of simplicity in regulation if they lack the technological resources to streamline and expedite their processes. This research is therefore intended to fill in this gap by examining the relationship between ICT measures and Ease of Doing Business. Moreover, we want to explore to what extent ICT measures mediate the effect of business regulation on country’s economic growth. The next sections describe the sources of data and are followed by the details of the preliminary results obtained using data for the year 2005. DATA COLLECTION AND EXPLORATION Our dependent variable of government regulation of business activity is measured by an index obtained from the World Bank’s “Doing Business” database. The most recent database was Proceedings of SIG GlobDev’s First Annual Workshop, Paris, France December 13 2008 SIMPSON ICTs, Regulation and Development: Cross-country Examination recently released in September 2008. This index is called “ease of doing business” (EDB) and is a summary measure of both amount of existing regulatory procedures and their corresponding outcomes including time and cost. The EDB index we use in this paper corresponds to the year 2005 and was computed as the simple average of country percentile ranking of each of the seven topics covered in the doing business report. This computational approach is appropriate when there is no information to determine the relative weights of the index components and it is common in different sectors and industries like education and sports (Doing Business report 2008). We use number of PCs per 1000 people and number of internet hosts as proxies for Information and Communication Technology (ICT) availability. These ICT data are obtained from the World Development Indicators (WDI) database from the World Bank for the year 2003. We use a lag of approximately two years to account for the time that it takes for technology changes to influence the regulatory framework. Because we are combining a set of indicators for different years from the two different datasets, we have different number of observations for different variables, which affect the total observations considered for the different regression models. The following table shows the definitions and sources of the data used. Table 1. Variable Definitions and Sources of Data Variable (Indicator) Definition Source Ease of Doing Business Index (EasDoBus) summary measure of both amount of existing regulatory procedures and their corresponding outcomes including time and cost Doing Business database from World Bank’s Doing Business Project. (2005) Personal computers (per 1,000 people) (PCs) Personal computers are self-contained computers designed to be used by a single individual, per 1,000 people. International Telecommunication Union, World Telecommunication Development Report and database. (2003) Secure internet hosts (Inet_Hst) Secure servers are servers using encryption technology in Internet transactions. International Telecommunication Union, World Telecommunication Development Report and database. (2003) Gross National Income (GNI) World Development Indicators Database (2005) Proceedings of SIG GlobDev’s First Annual Workshop, Paris, France December 13 2008 SIMPSON ICTs, Regulation and Development: Cross-country Examination Table 2. Descriptive Statistics Variables N Minimum Maximum Mean Std. Deviation EasDoBus 129 12.76 124.30360 66.67 26.05 Inet_Hst 126 .01 5549.40 249.42 656.93 PCs 116 .00 708.67 129.05 179.48 GNI_pc 128 100.00 43350.00 6720.84 10213.81 Valid N (listwise) 110 In order to improve linear relationship with our dependent variable “EasDoBus”, logarithmic transformation of independent has been applied to the considered variables. For example the figure below .shows the scatter plots for the number of internet hosts “InetHost”. Figure 1. Transformation of Variables EXAMINING THE INFLUENCE OF ICT MEASURES ON BUSINESS REGULATION Ln_Inet_Hst Ea sD oB us 9 8 7 6 5 4 3 2 1 0 140