An effective tool for promoting local growth and competitiveness?: The sustainability of the Subnational Business Environment Index

Abstract

This article examines the sustainability of the subnational business environment index (BEIs) as a development tool for subnational promotion of private sector growth and competitiveness. We define sustainability as the BEI's continued application after its external support has been concluded. The 13 BEIs examined here have been largely financed by international aid agencies over the past decade. We compare the main features of all the current or recent subnational BEIs we could locate, covering countries in Asia, Eastern Europe, and Latin America. We discuss their origins, financing, conceptual approaches, methodological parameters, intergovernmental linkages, and longevity. A few of them have been applied repeatedly as intended by index proponents, but nearly half of the indices have been discontinued. Two are eminently sustainable and another appears to be. The apparently successful index in El Salvador is highlighted. We conclude that indices face serious limitations, including politicization, weak business sector interest, lack of local funding, and need for an impartial sponsor. Yet indices do show some promise for reform where the index is well developed and where conditions that appear favorable to their successful utilization apply—that is, in countries with a strong private sector, governmental interest, and an open economy.