For a listing and comparison of available datasets and scorecards on various aspects of the investment climate, see IFC 2016; it also itemises the gaps in indicator availability. For evidence of the causal link between investment climate (primarily business environment reform) and growth, see LASER 2015. The paper concludes that the overall evidence base linking investment climate improvements to growth is weak, for example relating to contract enforcement. Land rights were found to have a more convincing link, through a range of different mechanisms.
For a review of the impact of business environment reform on investment, see DFID 2015; the review considered 129 studies, 14 of which provided evidence that BER contributes to increased investment, leading to increased profit, value added and revenue. However, the size of the firm influences these effects, with smaller firms benefiting more substantially than larger ones.
The Global Investment Competitiveness Report is based in part on a survey of 2,400 business executives representing FDI in 10 large developing countries (World Bank 2020). It concludes that government actions—such as reducing investor risk and increasing policy predictability—can rebuild investor confidence, based on the report’s new global database of regulatory risk. For aspects of the business environment selected as the biggest obstacle by 169,000 firms in 144 countries, see the World Bank Enterprise Surveys.
The ease of doing business is to some extent measured by the World Bank’s annual Doing Business surveys, which provides objective measures of business regulations for local firms in 190 economies, and ranks economies using aggregate scores on 10 topics. The 2020 DB report illustrates the problem by pointing out that an entrepreneur in a low-income economy typically still spends around 50% of the country’s per-capita income to launch a company, compared with just 4% for an entrepreneur in a high-income economy. It takes nearly six times as long on average to start a business in the economies ranked in the bottom 50 as in the top 20. (World Bank, 2020).
Historically (e.g. 2005-12), the DB initiative and others have written of quantified links between reducing the cost of doing business, and economic growth; correlation did not however prove a causal link for everyone (IFC 2016). More recently, the focus has been on nuanced discussion of the benefits of improved business regulation (see for example World Bank, 2018). There have also been questions about the data; at the end of 2020, the WBG published a review of data irregularities in Doing Business.
There are also questions about the approach: ‘it appears that when strict rules meet weak state capability … the rules bend and become more like individuated “deals”’ (Hallward-Driemeier and Pritchett, 2015). This has influenced a shift for some towards the hybrid approaches referred to in BERF, 2019, combining regulatory approaches with investments.
For a different analytical framework (and country ranking), see the Global Entrepreneurship Monitor, which conducts an annual survey of what it calls Entrepreneurial Framework Conditions (EFC) – which are defined in a way that is close to the wider definition of investment climate. See for example the Economy Profiles in the GEM 2019/2020 Global Report.
For a discussion of ‘what works’ in business environment reform, see BERF 2017.
Note that assessing the investment climate (broadly defined) relies on both subjective and contextual factors; the judgement call is essentially whether the risks are justified by the possible returns. It is therefore an art as much as a science.