4 Doing Business findings
A recent study of four years of Doing Business data shows that a higher Doing Business ranking is significantly associated with larger foreign direct investment4 in a country because it is seen as an attractive investment climate.
Related research has shown that business regulations as measured by Doing Business influence the impact of foreign direct investment. For example, economies with more effective regulations for starting a business benefit more from the foreign direct investment that they receive.
What Doing Business data reveals
Doing Business conducted an economic analysis of the relationship between Doing Business indicators and foreign direct investment flows. The analysis generally followed the model used by a 2011 study.5 This study considered the relationship between an economy’s performance on Doing Business indicators and the total foreign direct investment inflows from all other economies. It took into account differences in macroeconomic and governance conditions.
The new study used “distance to frontier” scores rather than economy rankings, as this was felt to be a more accurate measure of how far business regulations are from the most efficient practice.
The analysis considered differences in natural resource exports, and it covered a larger sample of between 145 and 160 economies across specifications.6
This study considered whether distance to frontier scores in one year are associated with total foreign direct investment inflows in the following year.
Findings of the new study
The new study took into account differences in income, inflation, population size, governance measures, openness to trade and exports of primary goods.
The findings clearly showed that a frontier score is significantly associated with larger inflows of foreign direct investment.
Other research findings
Greater domestic investment and gross domestic product growth7 are associated with reforms that improve the quality of the regulatory environment.