DP15879 Do Business-Friendly Reforms Boost GDP?

Author(s): Tamanna Adhikari, Karl Whelan
Publication Date: March 2021
Keyword(s): Doing business, economic growth, Institution
JEL(s): O43, O47
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15879

We use the time series variation in the World Bank's ``distance to frontier'' estimates of the ease of doing business to assess the effects of changes in this variable on real GDP per capita. The use of Vector Autoregression techniques allows us to identify shocks to the ease of doing business that are initially uncorrelated with GDP, thus addressing an important endogeneity problem that affects the cross-sectional literature on this topic. The results are surprising. We report a robust finding that improvements to the ease of doing business have at least a temporary negative impact on GDP and find little evidence for a positive effect in the years following these improvements.