Measuring Law and Institutions Redux

Simeon Djankov has a response here to Benito Arrunada's critique of the World Bank's Doing Business project.  Simeon summarizes compelling evidence that lowering barriers to entry is associated with new startup activity, and argues that resistance to reforms comes from vested interest groups such as notaries, who enjoy rents from the status quo ante. 

Benito's original critique can be read as consistent with this evidence.  I read his critique as stating that removing barriers to entry is insufficient to stimulate enhanced economic activity.  While such barriers do harm business formation, there may be some optimal and non-zero level of regulation that has collateral benefits in the form of enhanced certainty.  But it would be hard to maintain (and Benito does not) that the current level of ex ante regulation in developing countries is at all optimal.

           -TG