| A vibrant private sector—with firms making investments, creating jobs, and improving productivity— promotes growth and expands opportunities for poor people. To create one, governments around the world have implemented wide-ranging reforms, including macro-stabilization programs, price liberalization, privatization, and trade-barrier reductions. In many countries, however, entrepreneurial activity remains limited, poverty high, and growth stagnant. And other countries have spurned orthodox macro reforms and done well. How so?
Although macro policies are unquestionably important, there is a growing consensus that the quality of business regulation and the institutions that enforce it are a major determinant of prosperity. Hong Kong (China)’s economic success, Botswana’s stellar growth performance, and Hungary’s smooth transition experience have all been stimulated by a good regulatory environment. But little research has measured specific aspects of regulation and analyzed their impact on economic outcomes such as productivity, investment, informality, corruption, unemployment, and poverty. The lack of systematic knowledge prevents policymakers from assessing how good legal and regulatory systems are and determining what to reform. |
