Journal Article
Doing business in a deals world

The doubly false premise of rules reform

THIS ARTICLE IS ON EARLY VIEW  | The Doing Business reports have evoked an intense policy debate about whether countries should simplify regulatory rules or make them more stringent. We argue that doing business in developing countries is based on deals struck between firms and the state, rather than rules.

We show that there is a weak relationship between rules and deals, and at low levels of state capability, more stringent rules leading to less compliance, rather than more. We provide a diagnostic approach to rules reform where the appropriate reform depend on the level of stringency of the rules, and the level of its state capability.

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