Dec 23, 2018

Ease of Doing Business and States export performance

Do business reforms lead to better export performance? Are there any other measure(s) that correlate with export performance by Indian states? We can measure merchandise export performance of states against Ease of Doing Business and also against the Logistics Ease Across Different States (LEADS) index for some preliminary understanding of the matter in Indian context.

India has a Business Reforms score that measures the individual states in terms of ease of doing business, on similar lines as that of World Bank's (WB) Ease of Doing Business (EoDB). This is to help identify the reforms required to make doing business easier. The score card - let's call it EoDB for the sake of the simplicity - is maintained for all states and union territories of India.

LEADS index is relatively new. It has been created on the lines of World Bank's logistics performance index and covers various states and union territories of India. The 2018 report prepared by Deloitte for ministry of commerce can be found here.

The below table (mostly self explanatory) of various states with their merchandise export intensity with respect to their GDPs is compared with LEADS and EoDB scores shows that there exists a stronger correlation with respect to LEADS and merchandise exports (correlation coeff. of around 0.65) and lesser with regard to EoDB (correlation coeff. of around 0.4).


Even visually, it can be seen that LEADS scores seem to better correlate with export performance over EoDB score. This may be primarily due to the inherent methodology differences. LEADS covers an important determinant of export performance - the ease of logistics.

One more figure to ponder from the LEADS report:

image of logistics leads eodb states india export performance
A better LEADS performance indicates better exports and better GDP - not necessarily causation but good correlation