December 20, 2007

The World Bank has recently initiated a measurement of the barriers to entry that entrepreneurs face in various countries in the world. They report statistics on the number of procedures required to register the firm, how long it takes a firm to proceed from initial application to approval, and the costs of the process. The aim is to assess the bureaucratic and legal hurdles an entrepreneur faces in starting a business. A study by economists at the World Bank, Yale and Harvard has shown that countries with larger barriers to entry have greater political corruption, weaker competition, poorer public services, and higher prices. They conclude that regulatory restrictions that delay firm entry do not benefit consumers but do benefit politicians and bureaucrats.

The United States scores very highly in ease of entry. Average length of time to gain approval for starting a business is 6 days at a cost of $325. Only 5 countries in the world have faster approval times, led by Australia at 2 days. In contrast, it takes 694 days to get approval in Suriname, the country with the highest barriers to firm entry. Other poorly performing countries include Venezuela (141 days); Brazil (152 days); Haiti (202 days); and Guinea-Bissau (233 days). The median country is Poland at 31 days.

Perhaps in assessing the business climate in Ames, we should look at how closely we approach the upper tail or the lower tail of the distribution of time to approval for entrepreneurial firms. A recent letter to the Tribune asserts that the city did not impose atypical or costly delays on developer Wolford, a claim that even the beleaguered entrepreneurs of Suriname might find suspect.

Sources:

The World Bank. http://www.doingbusiness.org/ExploreTopics/StartingBusiness/

The Regulation of Entry (PDF, 131KB), by Djankov and others, Quarterly Journal of Economics, Feb. 2002.