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A new approach on the business environment

Jean-Pierre Dumas

May 15, 2023

The WB is proposing a new approach on the business environment. Since the statistics for China (and other countries?) published in the Doing Business Report were falsified, at the request of the then managing Director of the WB, Ms. Georgieva, the Doing Business Report was discontinued in 2021.

It is silly to use such tricks to artificially promote a country. Two big countries have a strong argument to ask for a better treatment in terms of quota allocation within the Bretton Woods institution, without trying to manipulate the figures related to the business climate in China. The distribution of the capital of the WB and the IMF is particularly biased in favour of the old rich countries (the European ones) to the detriment of the new rich countries on the international scene, China and India.

The table shows that the 'old' industrial countries have a larger share of capital (quotas) in the IMF than their economic weight. We have estimated the economic weight of each country as the average of its world share of GDP at current US dollar prices plus its world share at purchasing parity prices.

The world has changed since Bretton Woods (1944), new countries have emerged on the international scene and are developing rapidly, so their weight in the world economy is increasing at the expense of the weight of the 'old' countries. The initial quota allocation favoured the Bretton Woods’ founding countries and they are reluctant to reduce their share in favour of new comers.

Table: China & India have IMF’s quotas much lower than their economic weight; European countries have a disproportionate weight at the IMF (2022)

Source: International Monetary Fund, World Economic Outlook Database, April 2023

The Bretton Woods institutions are caught between the two new economic giants (China and India), these two countries are rightly calling for a re-evaluation of their share in the Bretton Woods institutions, the European countries are not in favour of this, as increasing China's (and India's) share is tantamount to reducing their share. Thus, China world weight is estimated at 18% of the world GDP (in 2022), while its quota within the IMF is three time lower. Similarly, India’s economic weight is 5% of the world GDP for a quota that is twice as low. On the other hand, Japan, Germany, the UK, and France have quotas higher than their economic world weight (see chart).

We disagree with the FT Alphaville (May 15, 2023) disregard for the WB Doing Business ranking. The Doing Business report was very useful, it was a relevant and concrete source on the business climate in each country, indicating the main obstacles faced by companies in doing business. It was undoubtedly one of the WB’s most important reports, because it was concrete (not using the econometric jargon so common in this institution), related to the business world and promoted a healthy competition between countries wishing to move up the scale of the ratings attributed each year by the WB.

Ranking countries, on the basis of a multi-criteria score, is and always will be a source of criticism. An authoritarian country can order to change a law in order to make it appears more business-friendly and thus artificially boost its ranking. Yes, a country can engage in “box-ticking exercises to improve its ranking rather than substantive reforms.” But that is not enough to dismiss this interesting and practical experiment that examines a country’s business environment which remains a key development factor. Don’t throw the baby out with the bathwater.

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