Anton From Perm

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Doing Business in Russia

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The World Bank published a Doing Business in Russia report several weeks ago. It focuses on 4 main indicators: starting a business, getting a construction permit (which is a total nightmare in Russia 🙂 ), registering property and trading across borders. Each indicators is measured by the number of steps/documents, the time to complete the procedures and the costs as a percentage of national income. Strangely, the World Bank didn’t publish a simulator as it did for other countries (China, Mexico, etc…) Get the simulator as a Excel spreadsheet here http://www.mediafire.com/?nwnwjz3ugwm (I use exactly the same methodology and formulas as the World Bank does in other reports)

A few words about the methodology:

The index is calculated as the simple average of a city’s percentile ranking on each of the 4 topics covered in the study (starting a business, getting a construction permit, registering property & trading abroad). The ranking on each topic is in turn the simple average of the percentile ranking on its component indicators. [The percentile rank is the percentage of values below (<) OR less or equal  (<=) to a  given value, depending on the definition]

For example it takes in Moscow 9 procedures, 30 days and 2.7% of annual income per capita to open a business.  The minimum capital requirement amounts to 2.2% of annual income per capita. It means that on the 4 component indicators, Moscow ranks in the 0th (best), 67th, 100th (worst) and 0th percentile. On average, Moscow ranks in the 53th percentile. It ranks in the 96th percentile on dealing with construction permits, 44th percentile on registering property and 67th percentile on trading across borders. The average of Moscow’s percentile rankings is 62%. If you now order all cities by their (ascending) average percentile rank, Moscow gets the last (and 10th) place.

However, percentiles are totally meaningless in small samples, especially when the observations are about the same and you get “tied ranks” while ordering the data. When you have ten values, of which eight are the same, you might have to assign the 0th or 100th percentile to the highest respectively the lowest value (some statisticians argues that the 0th and 100th percentile cannot be determined in a finite sample). And the remaining ones could lie in a range from 20th to 80th percentile (depending on HOW you define the percentile rank).

Now comes the problem: my calculations and the World Bank report’s result do not match, despite using exactly the same data and method. Let’s assume (out of goodwill) that the WB used a different method for calculating percentiles. I will post an update as soon as I get an answer from them.

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Written by antonfromperm

December 3, 2009 at 3:27 pm

2 Responses

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  1. I just faced exactly with the same kind of issue// …was googling and found you blog.

    Did you get an answer from WB? I think I have couple of ideas why it can be so… cause I was involved in one of WB Doing Business reports in 2007… built a model for Russia.

    KK

    April 30, 2010 at 12:36 pm

    • I received only the following response, which basically confirms the methodology I described in my post:

      Our final ranking is based upon the percentile ranking of each indicator.

      The percentile ranking of each indicator is calculated as the simple average of the percentile ranking of each sub-indicator (procedures, number of days, cost, etc.) The overall ranking is calculated as a simple average of the percentile rank of each indicator. In order to obtain the above-mentioned percentiles, we use the “percentrank” function of excel with the default number of digits (3) of approximation.

      Examples of the formula used are publicly available through our ranking simulator (e.g. see “simulate reforms” section on http://www.doingbusiness.org/subnational/exploreeconomies/Kenya2010.aspx)

      Please let us know if you have any further question.

      antonfromperm

      April 30, 2010 at 1:18 pm


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