54016 Does Business Registration introduce the reform first in some municipalities and then later in others. Reform Increase Before the reform., different municipalities Entrepreneurial Activity? had different registration procedures, but after the reform. procedures were mostly Mirialll Bnllm unified. On average, the reform. reduced the number of procedures from 8 to less than 3. The view that burdensome regulations are an Another feature of the reform was that it important barrier to private sector created a one-stop shop solution where development was famously expressed by businesses could complete federal, state and Hernando de Soto, who calculated that it municipal registration procedures all in one would take 289 days, 11 permits, and over office. $1,000 to legally register a small business in Peru. This emphasis on regulatory reform. Measuring Impact has been further spurred by the World The variation across time and municipalities Bank's Doing Business project. The 2009 in the implementation ofthe reform provides report notes that in the past six years almost an opportunity for measming its effects 1000 reforms have occurred in the areas through a matched difference-in-difference measured by Doing Business, with the most strategy. The change in outcomes of interest common reform. being one which makes it in municipalities that have already easier to start a business by reducing the implemented the refonn can be compared to costs and number of procedures needed. the change in outcomes of similar Despite the huge number of reforms, there is ?Iunicipalities that have not yet almost no rigorous impact evaluation of lIDplemented the reform. This comparison these reforms. One exception is a recent gives valid results if the characteristics of study that investigates the effects of a the municipalities that adopted the reform. business registration reform. in Mexico. early are similar to the ones of the municipalities that adopted the reform later. One-stop shop business registration in In Mexico, this was the case for the Mexico municipalities that implemented the reform. In 2002, the Mexican government started in the first couple of years. implementing a business registration reform. which greatly simplified municipal Positive effects on the number of procedures required for obtaining an operating license. This reform was initiated registered businesses A cross-municipality, cross-time comparison by a federal agency that then worked with of outcome variables from the Mexican municipal governments at implementing it. Labor Market Survey, shows that: Staffing constraints in the federal agency implied that they could not work with all municipalities at once, leading them to ~ y08 ....ve a ~roJect y08 waDt evaluated? DECRG-FP researchers are always looking for opportunities to work WIth co~gues 1D the BaDk: and IFC. If you would like to ask our experts for advice or to collaborate on an evaluatiOn, cootact us care ofthc ~ editor,- David McKenzie (dmckeozie@Worldbank.org) - · The reform increased the number of that typically employ women, such as small registered business by 5 percent in grocery stores, clothing stores, home-style eligible industries. food-to-go vendors, and beauty salons. · Employment increased by 3 percent. · Consumer prices decreased, PoUcy implications presumably due to the increase in 1. Simplification of entry regulation competition from new businesses. appears to be an effective policy for · Incumbent businesses saw a drop in fostering entrepreneurial activity. In their income of about 3 percent. Mexico, simplifying business registration procedures led to an increase in the nwnber Are newly registered firms new firms or of registered firms. This effect was larger in existing, but previously informal, firms? municipalities where the reduction in In addition to establishing that the reform registration procedures was larger, implying increased the number of registered that governments should sttive to simplify businesses, it is also important to investigate entry regulation as much as possible. whether this effect is due new firm creation or due to existing informal firms registering. 2. Business registration reform also has It is commonly argued that informal firms positive effects on tbe economy as a should register when it becomes easier to do whole. The reform in Mexico increased so. This is, however, not what the evidence employment, providing employment to from Mexico suggests. An in-depth analysis individuals who were previously not shows that informal firms are not more employed The reform also lowered prices, likely to register their business after the presumably due to an increase in business reform than they were before the reform. competition. Overall, this suggest that this In~ the individuals who previously type of reform· has the potential to increase worked as wage earners open new registered growth, although this could not be measured . firms after the reform. This contradicts the directly in Mexico since municipal level view that informal small business owners GDP data is only available every five years. are individuals who wish to become formal, but are being held back by high barriers to 3. Complex business registration does not registration seem to be the binding constraint that prevents Informal firms from formalizing. Only men open new firms There is no evidence that informal Breaking down the effect by gender reveals businesses register after the refonn. This that only the number of male-owned could be due to other important constraints businesses increased after the reform, while that may be preventing informal finns from there was no effect on the number of female becoming formal. After a firm is registered, owned businesses. However, employment it has to pay taxes and comply with labor for women increased because women were regulation (even though compliance is far more likely to work as wage earners in from universa1 in Mexico). The associated eligible industties after the reform. This is costs could be so big that changing consistent with administrative data which registration procedures may not be enough indicate that many of the newly created to push informal businesses over the businesses after the reform were in sectors threshold to formality. For furthq rcwting see: Bruhn, Miriam (2008). "License to Sell: The Effect ofBusiness Registration Reform on Entrepreoeurial Activity in Mexico." World Bank Policy Resemch Working Paper 4538.