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Business Start-Up Indicator

Description

An index that rates countries on the time and cost of complying with all procedures officially required for an entrepreneur to start up and formally operate an industrial or commercial business as well as the overall business environment in a country.

Relationship to Economic Growth

The ability to start a business is important for encouraging entrepreneurship and economic growth.123 Easing business entry into the formal economy can reduce unemployment, encourage investment, expand the tax base, help small entrepreneurs to access bank credit, allow workers to enjoy health insurance and pension benefits, and enable businesses to achieve economies of scale.124 A better environment for businesses and entrepreneurship can lead to poverty reduction and broad-based economic growth.125

Methodology

Indicator Institution Methodology

This indicator uses data from two sources: the Heritage Foundation’s indicator on Business Freedom (https://www.heritage.org/index/pages/all-country-scores) and the World Bank’s Business Ready (B-Ready) report on Business Entry (https://www.worldbank.org/en/businessready/data). The indicators use a combination of expert surveys, firm surveys, and expert analysis to determine a country’s score.

  • Heritage: Business Freedom: The Heritage Foundation combines several sub-sources on access to electricity, business risk, regulatory quality, and women’s economic inclusion to create an index that captures the overall business environment in a country.
  • B-Ready: Domestic Firm Registration: This component of B-Ready’s Business Entry index (Category 3.1) is based on 2 sub-components: the total cost and the total time to register a new domestic firm.  The scores for these questions are based on the responses to expert surveys.
  • B-Ready: Foreign Firm Registration: This component of B-Ready’s International Trade index (Category 3.2) is based on 2 sub-components: the total cost and the total time to register a new foreign firm. The scores for these questions are based on the responses to expert surveys.

MCC Methodology

MCC’s Business Start-Up Score = [ (Normalized B-Ready Domestic) ÷ 3] + [ (Normalized B-Ready Foreign) ÷ 3] + [ (Normalized Heritage Business Freedom) ÷ 3]

This index draws on the Heritage 2025 dataset and the 2024 B-Ready dataset. Country scores are reported on the Scorecards as 2024 data. When some indicators are missing data, the others are used. Since the two sources of this index have different scales, MCC created a common scale for each of the indicators by normalizing them. Please see the equations below.

MCC Methodology to Normalize B-Ready and Heritage Data:

  • Normalized B-Ready Domestic = (Number of countries scoring below Country X on Domestic raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on Domestic raw data in the income group + Number of countries scoring below Country X on Domestic raw data in the income group)
  • Normalized B-Ready Foreign = (Number of countries scoring below Country X on Foreign raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on Foreign raw data in the income group + Number of countries scoring below Country X on Foreign raw data in the income group)
  • Normalized Heritage Business Freedom = (Number of countries scoring below Country X on Business Freedom raw data in the income group) ÷ (Number of Countries scoring equal to or greater than Country X on Business Freedom raw data in the income group + Number of countries scoring below Country X on Business Freedom raw data in the income group)

For example, to calculate a given country X’s score, MCC first finds the number of countries that score worse than that country in the income pool, and the number of countries that have the same or better score than country X on the sub-source in the income pool.  MCC then divides the number of countries below by the sum of the number of countries below and the number of countries equal or above. Missing values are not included in these calculations. Finally, MCC averages the normalized values for each source together. If one source is missing, the average of the normalized scores for the other two is used.  If two sources are missing, the normalized score for the other is used. If all three are missing, the indicator is considered missing and assigned an “N/A”.