Guide to the MCC Indicators for Fiscal Year 2020

The Millennium Challenge Corporation (MCC) uses third-party indicators to identify countries with policy environments that will allow Millennium Challenge Account (MCA) funding to be effective in reducing poverty and promoting economic growth. MCC evaluates performance in three areas—Ruling Justly, Investing in People, and Encouraging Economic Freedom—using independent, third-party policy indicators. This is a guide to understanding and interpreting the indicators used by MCC in Fiscal Year 2020. It provides an overview of the policies measured by the indicators, the relationship that these policies have to economic growth and poverty reduction, the methodologies used by the various indicator institutions to measure policy performance, descriptions of the underlying source(s) of data, and the contact information of the indicator institutions.

MCC favors indicators that:

1. are developed by an independent third party,
2. utilize an analytically-rigorous methodology and objective, high-quality data,
3. are publicly available,
4. have broad country-coverage,
5. are comparable across countries,
6. have a clear theoretical or empirical link to economic growth and poverty reduction,
7. are policy-linked, i.e. measure factors that governments can influence, and
8. have appropriate consistency in results from year to year.

Ruling Justly Category

Political Rights Indicator

Countries are rated on the following factors:

• free and fair executive and legislative elections; fair polling; honest tabulation of ballots;
• fair electoral laws; equal campaigning opportunities;
• the right to organize in different political parties and political groupings; the openness of the political system to the rise and fall of competing political parties and groupings;
• the existence of a significant opposition vote; the existence of a de facto opposition power, and a realistic possibility for the opposition to increase its support or gain power through elections;
• the participation of cultural, ethnic, religious, or other minority groups in political life;
• freedom from domination by the military, foreign powers, totalitarian parties, religious hierarchies, economic oligarchies, or any other powerful group in making personal political choices; and
• the openness, transparency, and accountability of the government to its constituents between elections; freedom from pervasive government corruption; government policies that reflect the will of the people.

Relationship to Growth and Poverty Reduction

Source

Methodology

In consultation with Freedom House, MCC considers countries with scores above 17 to be passing this indicator.

Civil Liberties Indicator

Countries are rated on the following factors:

• freedom of cultural expression, religious institutions and expression, and academia;
• freedom of assembly and demonstration, of political organization and professional organization, and collective bargaining;
• independence of the media and the judiciary;
• freedom from economic exploitation;
• protection from police terror, unjustified imprisonment, exile, and torture;
• the existence of rule of law, personal property rights, and equal treatment under the law;
• freedom from indoctrination and excessive dependency on the state;
• equality of opportunity;
• freedom to choose where to travel, reside, and work;
• freedom to select a marriage partner and determine whether or how many children to have; and
• the existence of a legal framework to grant asylum or refugee status in accordance with international and regional conventions and system for refugee protection.

Relationship to Growth and Poverty Reduction:

Source

Methodology

In consultation with Freedom House, MCC considers countries with scores above 25 to be passing this indicator.

Control of Corruption Indicator

Countries are evaluated on the following factors:

• The prevalence of grand corruption and petty corruption at all levels of government;
• The effect of corruption on the “attractiveness” of a country as a place to do business;
• The frequency of “irregular payments” associated with import and export permits, public contracts, public utilities, tax assessments, and judicial decisions;
• Nepotism, cronyism and patronage in the civil service;
• The estimated cost of bribery as a share of a company’s annual sales;
• The perceived involvement of elected officials, border officials, tax officials, judges, and magistrates in corruption;
• The strength and effectiveness of a government’s anti-corruption laws, policies, and institutions;
• Public trust in the financial honesty of politicians;
• The extent to which:
  • processes are put in place for accountability and transparency in decision-making and disclosure of information at the local level;
  • government authorities monitor the prevalence of corruption and implement sanctions transparently;
  • conflict of interest and ethics rules for public servants are observed and enforced;
  • the income and asset declarations of public officials are subject to verification and open to public and media scrutiny;
  • senior government officials are immune from prosecution under the law for malfeasance;
  • the government provides victims of corruption with adequate mechanisms to pursue their rights;
  • the tax administrator implements effective internal audit systems to ensure the accountability of tax collection;
  • the executive budget-making process is comprehensive and transparent and subject to meaningful legislative review and scrutiny;
  • the government ensures transparency, open-bidding, and effective competition in the awarding of government contracts;
  • there are legal and functional protections for whistleblowers, anti-corruption activists, and investigators;
  • allegations of corruption at the national and local level are thoroughly investigated and prosecuted without prejudice;
  • government is free from excessive bureaucratic regulations, registration requirements, and/or other controls that increase opportunities for corruption;
  • citizens have a legal right to information about government operations and can obtain government documents at a nominal cost.

Relationship to Growth and Poverty Reduction

Source

Methodology

Government Effectiveness Indicator

Countries are evaluated on the following factors:

• competence of civil service; effective implementation of government decisions; and public service vulnerability to political pressure;
• ability to manage political alternations without drastic policy changes or interruptions in government services;
• flexibility, learning, and innovation within the political leadership; ability to coordinate conflicting objectives into coherent policies;
• the efficiency of revenue mobilization and budget management;
• the quality of transportation infrastructure, telecommunications, electricity supply, public health care provision, and public schools; the availability of online government services;
• policy consistency; the extent to which government commitments are honored by new governments;
• prevalence of red tape; the degree to which bureaucratic delays hinder business activity;
• existence of a taxpayer service and information program, and an efficient and effective appeals mechanism;
• the extent to which:
  • effective coordination mechanisms ensure policy consistency across departmental boundaries, and administrative structures are organized along functional lines with little duplication;
  • the business processes of government agencies are regularly reviewed to ensure efficiency of decision making and implementation;
  • political leadership sets and maintains strategic priorities and the government effectively implements reforms;
  • hiring and promotion within the government is based on merit and performance, and ethical standards prevail;
  • the government wage bill is sustainable and does not crowd out spending required for public services; pay and benefit levels do not deter talented people from entering the public sector; flexibility (that is not abused) exists to pay more attractive wages in hard-to-fill positions;
  • government revenues are generated by low-distortion taxes; import tariffs are low and relatively uniform, export rebate or duty drawbacks are functional; the tax base is broad and free of arbitrary exemptions; tax administration is effective and rule-based; and tax administration and compliance costs are low;
  • policies and priorities are linked to the budget; multi-year expenditure projections are integrated into the budget formulation process, and reflect explicit costing of the implications of new policy initiatives; the budget is formulated through systematic consultations with spending ministries and the legislature, adhering to a fixed budget calendar; the budget classification system is comprehensive and consistent with international standards; and off-budget expenditures are kept to a minimum and handled transparently;
  • the budget is implemented as planned, and actual expenditures deviate only slightly from planned levels;
  • budget monitoring occurs throughout the year based on well-functioning management information systems; reconciliation of banking and fiscal records is practiced comprehensively, properly, and in a timely way;
  • in-year fiscal reports and public accounts are prepared promptly and regularly and provide full and accurate data; the extent to which accounts are audited in a timely, professional and comprehensive manner, and appropriate action is taken on budget reports and audit findings.

Relationship to Growth and Poverty Reduction

Source

Methodology

Rule of Law Indicator

Countries are evaluated on the following factors:

• public confidence in the police force and judicial system; popular observance of the law; a tradition of law and order; strength and impartiality of the legal system;
• prevalence of petty crime, violent crime, and organized crime; foreign kidnappings; economic impact of crime on local businesses; prevalence of human trafficking; government commitment to combating human trafficking;
• the extent to which a well-functioning and accountable police force protects citizens and their property from crime and violence; when serious crimes do occur, the extent to which they are reported to the police and investigated;
• security of private property rights; protection of intellectual property; the accuracy and integrity of the property registry; whether citizens are protected from arbitrary and/or unjust deprivation of property;
• the enforceability of private contracts and government contracts;
• the existence of an institutional, legal, and market framework for secure land tenure; equal access to land among men and women; effective management of common property resources; equitable user-rights over water resources for agriculture and local participation in the management of water resources;
• the prevalence of tax evasion and insider trading; size of the informal economy;
• independence, effectiveness, predictability, and integrity of the judiciary; compliance with court rulings; legal recourse for challenging government actions; ability to sue the government through independent and impartial courts; willingness of citizens to accept legal adjudication over physical and illegal measures; government compliance with judicial decisions, which are not subject to change except through established procedures for judicial review;
• the independence of prosecutors from political direction and control;
• the existence of effective and democratic civilian state control of the police, military, and internal security forces through the judicial, legislative, and executive branches; the police, military, and internal security services respect human rights and are held accountable for any abuses of power;
• impartiality and nondiscrimination in the administration of justice; citizens are given a fair, public, and timely hearing by a competent, independent, and impartial tribunal; citizens have the right to independent counsel and those charged with serious felonies are provided access to independent counsel when it is beyond their means; low-cost means are available for pursuing small claims; citizens can pursue claims against the state without fear of retaliation;
• protection of judges and magistrates from interference by the executive and legislative branches; judges are appointed, promoted, and dismissed in a fair and unbiased manner; judges are appropriately trained to carry out justice in a fair and unbiased manner; members of the national-level judiciary must give reasons for their decisions; existence of a judicial ombudsman (or equivalent agency or mechanism) that can initiate investigations and impose penalties on offenders;
• law enforcement agencies are protected from political interference and have sufficient budgets to carry out their mandates; appointments to law enforcement agencies are made according to professional criteria; law enforcement officials are not immune from criminal proceedings;
• the existence of an independent reporting mechanism for citizens to complain about police actions; timeliness of government response to citizen complaints about police actions.

Relationship to Growth and Poverty Reduction

Source

Methodology

Freedom of Information Indicator

Relationship to Growth and Poverty Reduction

Sources and Methodologies

1. Reporters without Borders’ (RSF) World Press Freedom Index, https://rsf.org/en/ranking/2019. Questions regarding this indicator may be directed to index@rsf.org or +33 1 44 83 84 65

2. Centre for Law and Democracy and Access Info’s Right to Information Index, http://www.rti-rating.org/. Questions regarding this indicator may be directed to Toby Mendel at toby@law-democracy.org or +1 (902) 431-3688.

3. Freedom House’s Freedom of the Net Key Internet Controls, https://freedomhouse.org/report-types/freedom-net Questions regarding this indicator may be directed to info@freedomhouse.org or +1 (202) 296-5101.

Data Compilation Methodology: This indicator uses a country’s score on RSF’s World Press Freedom Index (Press) as the base. Countries’ base scores improve by four points if the Right to Information Index (RTI) has designated them as having a FOIA law on the books. Data from the Key Internet Controls (KiC) checklist is used to penalize some countries’ base scores. A country’s score is penalized by 1 point for every internet control method in place, for up to a total of a 9 point penalty.

On this index, lower is better. Overall index scores are calculated as follows:

Press – RTI + KiC = index score 

Note regarding new methodology for FY20: Previously, Freedom House’s Press Freedom Index was used in place of RSF as a base. However, Freedom House stopped producing this index. After consultation with Freedom House and a survey of existing comparable measures of freedom of the press, RSF was selected as the best alternative.[[RSF does not cover all MCC countries. As a result, MCC utilizes previous Freedom House data to create comparable scores for countries not covered by RSF (currently five countries). This methodology is available in the Data Notes for Fiscal Year 2020. These data are pulled from Freedom House’s Press Freedom Index (https://freedomhouse.org/report/freedom-press-2017-methodology). Questions regarding these data may be directed to info@freedomhouse.org or +1 (202) 296-5101.]]

Investing in People Category

Immunization Rates Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

To estimate national immunization coverage, WHO and UNICEF draw on two sources of empirical data: reports of vaccinations performed by service providers (administrative data) and surveys containing items on children’s vaccination history (coverage surveys). Surveys are frequently used in conjunction with administrative data; in some instances—where administrative data differ substantially from survey results—surveys constitute the sole source of information on immunization coverage levels. There are a number of reasons survey data may be used over administrative data; for instance, in some cases, lack of precise information on the size of the target population (the denominator) can make immunization coverage difficult to estimate from administrative data alone. Estimates of the most likely true level of immunization coverage are based on the data available, consideration of potential biases, and contributions of local experts.

In consultation with the WHO, MCC considers countries with a GNI per capita between $1,926 and $3,995 with immunization coverage above 90% to be passing this indicator. Countries with a GNI per capita below $1,925 that score above the median in that income pool are considered to be passing this indicator.[[MCC uses the World Bank’s historical ceiling for IDA eligibility to divide countries into two assessment categories. Countries that fall below the ceiling (GNI per capita of $0-$1,925 for FY20) and countries above the ceiling but below the World Bank’s LMIC cut-off (GNI per capita of $1,926-$3,995 in FY20).]]

Health Expenditures Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

Primary Education Expenditures Indicator

Relationship to Growth and Poverty Reduction

Moretti, E. 2004. Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data. Journal of Econometrics 121(1-2).]] Investments in basic education are also critical to poverty reduction. Research shows that regions that begin with higher levels of education generally see a larger poverty impact of economic growth.[[Datt, Gaurav and Martin Ravallion. 1998. Why have Some Indian States Done Better than Others at Reducing Rural Poverty? Economica 65: 17-38. Christiaensen, L., L. Demery, and S. Paternostro. 2003. Macro and Micro Perspectives of Growth and Poverty in Africa. The World Bank Economic Review 17: 317-334.]]

Source

Methodology

Government outlays on primary education include expenditures on services provided to individual pupils and students and expenditures on services provided on a collective basis. Primary education includes the administration, inspection, operation, or support of schools and other institutions providing primary education at ISCED-97 level 1. It also includes literacy programs for students too old for primary school. For FY20, MCC will use the most recent UNESCO data from 2013 - 2018.

Girls’ Primary Education Completion Rate Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

Girls’ Secondary Education Enrolment Ratio Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

Child Health Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

• Access to Improved Sanitation: Produced by the World Health Organization (WHO) and the United Nations Children's Fund (UNICEF), this indicator measures the percentage of the population with access to facilities that hygienically separate human excreta from human, animal, and insect contact. Facilities such as sewers or septic tanks, pour-flush latrines and simple pit or ventilated improved pit latrines are assumed to be adequate, provided that they are not public and not shared with other households.
• Access to Improved Water: Produced by WHO and UNICEF, this indicator measures the percentage of the population with access to at least 20 liters of water per person per day from an “improved” source (household connections, public standpipes, boreholes, protected dug wells, protected springs, and rainwater collection) within one kilometer of the user's dwelling and with collection times of no more than 30 minutes.
• Child Mortality (Ages 1-4): Produced by the United Nations Inter-agency Group for Child Mortality Estimation (IGME), this indicator measures the probability of dying between ages 1 and 4.

Natural Resource Protection

Relationship to Growth and Poverty Reduction

Source

Methodology

Encouraging Economic Freedom Category

Regulatory Quality Indicator

Countries are evaluated on the following factors:

• prevalence of regulations and administrative requirements that impose a burden on business; ease of starting and closing a new business; ease of registering property;
• government intervention in the economy; the extent to which government subsidies keep uncompetitive industries alive;
• labor market policies; employment law provides for flexibility in hiring and firing; wage and price controls;
• the complexity and efficiency of the tax system; pro-investment tax policies;
• trade policy; the height of tariffs barriers; the number of tariff bands; the stability of tariff rates; the extent to which non-tariff barriers are used; the transparency and predictability of the trade regime;
• investment attractiveness; prevalence of bans or investment licensing requirements; financial regulations on foreign investment and capital; legal restrictions on ownership of business and equity by non-residents; foreign currency regulations; general uncertainty about regulation costs; legal regulation of financial institutions; the extent to which exchange rate policy hinders firm competitiveness;
• extensiveness of legal rules and effectiveness of legal regulations in the banking and securities sectors; costs of uncertain rules, laws, or government policies;
• the strength of the banking system; existence of barriers to entry in the banking sector; ease of access to capital markets; protection of domestic banks from foreign competition; whether interest rates are heavily-regulated; transfer costs associated with exporting capital;
• participation of the private sector in infrastructure projects; dominance of state-owned enterprises; openness of public sector contracts to foreign investors; the extent of market competition; effectiveness of competition and anti-trust policies and legislation;
• the existence of a policy, legal, and institutional framework that supports the development of a commercially-based, market-driven rural finance sector that is efficient, equitable, and accessible to low-income populations in rural areas;
• the adoption of an appropriate policy, legal, and regulatory framework to support the emergence and development of an efficient private rural business sector; the establishment of simple, fast and transparent procedures for establishing private agri-businesses;
• the existence of a policy, legal, and institutional framework that supports the development and liberalization of commercially-based agricultural markets (for inputs and produce) that operate in a liberalized and private sector-led, functionally efficient and equitable manner, and that are accessible to small farmers; and
• the extent to which:
  • corporate governance laws encourage ownership and financial disclosure and protect shareholder rights, and are generally enforced;
  • state intervention in the goods and land market is generally limited to regulation and/or legislation to smooth out market imperfections;
  • the customs service is free of corruption, operates transparently, relies on risk management, processes duty collections, and refunds promptly; and
  • trade laws, regulations, and guidelines are published, simplified, and rationalized.

Relationship to Growth and Poverty Reduction

Source

Methodology

Land Rights and Access Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

• Access to Land: Produced by IFAD, this indicator assesses the extent to which the institutional, legal, and market framework provides secure land tenure and equitable access to land in rural areas. It is made up of five subcomponents:  (1) the extent to which the law guarantees secure tenure for land rights of the poor; (2) the extent to which the law guarantees secure land rights for women and other vulnerable groups; (3) the extent to which land is titled and registered; (4) the functioning of land markets; and (5) the extent to which government policies contribute to the sustainable management of common property resources. IFAD’s operational staff base their assessments on a questionnaire and guideposts identifying the basis of each scoring level, available at  https://webapps.ifad.org/members/gc/42/docs/GC-42-L-6.pdf or https://webapps.ifad.org/members/eb/125/docs/EB-2018-125-R-4-Add-1.pdf.  Past datasets can be found in the documents of IFAD’s governing council https://webapps.ifad.org/members/gc.
• Days to Register Property: Produced by the IFC, this indicator measures how long it takes to register property in a periurban zone. The IFC records the full amount of time necessary when a business purchases land and a building to transfer the property title from the seller to the buyer so that the buyer can use the title for expanding business, as collateral in taking new loans, or, if necessary, to sell to another business.
• Cost of Registering Property: Produced by the IFC, this indicator measures the cost to register property in a periurban zone as a percentage of the value of the property. The IFC records all of the costs that are incurred when a business purchases land and a building to transfer the property title from the seller to the buyer, so that the buyer can use it for expanding his business, as collateral in taking new loans, or, if necessary, to sell it to another business.

The parties (buyer and seller):

• Are limited liability companies.
• Are located in the periurban area of the country’s most populous city.
• Are 100% domestically and privately owned.
• Have 50 employees each, all of whom are nationals.
• Perform general commercial activities.

• Has a value of 50 times income per capita. The sale price equals the value.
• Is fully owned by the seller.
• Has no mortgages attached and has been under the same ownership for the past 10 years.
• Is registered in the land registry or cadastre, or both, and is free of title disputes.
• Is located in a periurban commercial zone, and no rezoning is required.
• Consists of land and a building. The land area is 557.4 square meters (6,000 square feet). A 2-story warehouse of 929 square meters (10,000 square feet) is located on the land. The warehouse is 10 years old, is in good condition and complies with all safety standards, building codes and other legal requirements. The property of land and building will be transferred in its entirety.
• Will not be subject to renovations or additional building following the purchase.
• Has no trees, natural water sources, natural reserves or historical monuments of any kind.
• Will not be used for special purposes, and no special permits, such as for residential use, industrial plants, waste storage or certain types of agricultural activities, are required.
• Has no occupants (legal or illegal), and no other party holds a legal interest in it.

Access to Credit Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

• Depth of Information: The depth of credit information index measures rules and practices affecting the coverage, scope and accessibility of credit information available through either a public credit registry or a private credit bureau. A score of 1 is assigned for each of the following 8 features of the public credit registry or private credit bureau (or both):
• Both positive credit information (for example, outstanding loan amounts and pattern of on-time repayments) and negative information (for example, late payments, number and amount of defaults and bankruptcies) are distributed.
• Data on both firms and individuals are distributed.
• Data from retailers and utility companies as well as financial institutions are distributed.
• More than 2 years of historical data are distributed. Credit registries and bureaus that erase data on defaults as soon as they are repaid obtain a score of 0 for this indicator.
• Data on loan amounts below 1% of income per capita are distributed. Note that a credit registry or bureau must have a minimum coverage of 1% of the adult population to score a 1 on this indicator.
• By law, borrowers have the right to access their data in the largest credit registry or bureau in the economy.
• Can banks and financial institutions access the credit information online?
• Does the credit information system provide credit score and make it available to all service subscribers?

• Strength of Legal Rights: This component measures the extent to which bankruptcy and collateral laws protect the rights of borrowers and lenders to facilitate lending. It contains 12 aspects related to legal rights in collateral law or bankruptcy law. A score of 1 is assigned for each of the following features of the laws:
  • Any business may use movable assets as collateral while keeping possession of the assets, and any financial institution may accept such assets as collateral.
  • The law allows a business to grant a nonpossessory security right in a single category of movable assets (such as accounts receivable or inventory), without requiring a specific description of the collateral.
  • The law allows a business to grant a nonpossessory security right in substantially all its movable assets, without requiring a specific description of the collateral.
  • A security right may extend to future or after-acquired assets and may extend automatically to the products, proceeds or replacements of the original assets.
  • A general description of debts and obligations is permitted in the collateral agreements and in registration documents: all types of debts and obligations can be secured between the parties, and the collateral agreement can include a maximum amount for which the assets are encumbered.
  • A collateral registry or registration institution is in operation, unified geographically and by asset type, with an electronic database indexed by debtors’ names.
  • Secured creditors are paid first (for example, before general tax claims and employee claims) when a debtor defaults outside an insolvency procedure.
  • Secured creditors are paid first (for example, before general tax claims and employee claims) when a business is liquidated.
  • Secured creditors are not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure.
  • The law allows parties to agree in a collateral agreement that the lender may enforce its security right out of court.
  • Does the economy have an integrated/unified legal framework for secured transactions?
  • Is the collateral registry a notice based registry? Does the collateral registry count with modern features (such as an online search?)

Business Start-Up Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

• Days to Start a Business: This component measures the number of calendar days it takes to comply with all procedures that are officially required for an entrepreneur to start up and formally operate an industrial or commercial business. These include obtaining all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities.
• Cost of Starting a Business: This component measures the cost of starting a business as a percentage of country’s per capita income. The IFC records all procedures that are officially required for an entrepreneur to start up and formally operate an industrial or commercial business. These include obtaining all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities.

Two types of businesses are considered under the methodology. They are identical in all aspects, except that one company is owned by five married women and other by five married men. To make the data comparable across countries, several assumptions about the businesses and the procedures are used. The business:

• is a limited liability company; if there is more than one type of limited liability company in the country, the most popular limited liability form among domestic firms is chosen. Information on the most popular form is obtained from incorporation lawyers or the statistical office;
• operates in the economy’s largest business city. For 11 economies, the data are also collected for the second largest business city. In these instances, MCC utilizes the simple average of the two cities, as computed by IFC;
• is 100% domestically owned and has five owners, none of whom is a legal entity;
• has start-up capital of 10 times income per capita, paid in cash;
• performs general industrial or commercial activities, such as the production or sale of products or services to the public; it does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco; the business is not using heavily polluting production processes;
• leases the commercial plant and offices and is not a proprietor of real estate;
• does not qualify for investment incentives or any special benefits;
• has at least 10 and up to 50 employees one month after the commencement of operations, all of them nationals;
• has a turnover at least 100 times income per capita; and
• has a company deed 10 pages long.

The text of the company law, the commercial code and specific regulations and fee schedules are used as sources for calculating the cost of start-up. If there are conflicting sources and the laws are not clear, the most authoritative source is used. The constitution supersedes the company law, and the law prevails over regulations and decrees. If conflicting sources are of the same rank, the source indicating the most costly procedure is used, since an entrepreneur never second-guesses a government official. In the absence of fee schedules, a government officer’s estimate is taken as an official source. In the absence of a government officer’s estimate, estimates of incorporation lawyers are used. If several incorporation lawyers provide different estimates, the median reported value is applied. In all cases the cost excludes bribes

Trade Policy Indicator

• Trade-weighted average tariff rate;
• Non-tariff barriers (NTBs) including, but not limited to: import licenses; trade quotas; production subsidies; anti-dumping, countervailing, and safeguard measures; government procurement procedures; local content requirements; excessive marking and labeling requirements; export assistance; export taxes and tax concessions; and corruption in the customs service.

Relationship to Growth and Poverty Reduction

Source

Methodology

Trade Policy_i = (Tariff_max-Tariff_i)/(Tariff_max-Tariff_min) - NTB_i

Trade Policy_i represents the trade freedom in country i, Tariff_max and Tariff_min represent the upper and lower bounds (50 and zero percent respectively), and Tariff_i represents the weighted average tariff rate in country i. The result is multiplied by 100 to convert it to a percentage. If applicable to country i, an NTB penalty of 5, 10, 15, or 20 percentage points is then subtracted from the base score, depending on the pervasiveness of NTBs.

In general, the Heritage Foundation uses the weighted average tariff rate (weighted by imports from the country’s trading partners) as the tariff score. In the absence of weighted average applied tariff rate data, a country’s average applied tariff rate is used. In the absence of average applied tariff rate data, the weighted average or the simple average of most favored nation tariff rates are used. In the very few cases where data on duties and customs revenues are not available, the authors rely on measures of international trade taxes. Data on tariffs and NTBs are obtained from the following sources in order of descending priority: the World Bank’s World Development Indicators and Data on Trade and Import Barriers: Trends in Average Tariff Rates for Developing and Industrial Countries; the World Trade Organization’s Trade Policy Reviews; the Office of the U.S. Trade Representative’s National Trade Estimate Report on Foreign Trade Barriers, the World Bank’s Doing Business report, the U.S. Department of Commerce’s Country Commercial Guide, the Economist Intelligence Unit’s Country Reports, Country Profiles, and Country Commerce data, and “official government publications of each country.”

Inflation Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

In keeping with economic research findings, MCC considers countries with inflation below 15% to be passing this indicator.

Fiscal Policy Indicator

Relationship to Growth and Poverty Reduction

Source

Methodology

Gender in the Economy Indicator

Relationship to Growth and Poverty Reduction

• Accessing Institutions: This area explores women’s legal ability to interact with public authorities and the private sector in the same way as men. Studies show that legally sanctioned gender inequality has a significant negative impact on a country’s economic growth because it prevents a large portion the population from fully participating in the economy, thus lowering the average ability of the workforce.[[Esteve-Volart, Berta. 2004 Gender Discrimination and Growth: Theory and Evidence from India. London School of Economics and Political Science.  Klasen, Stephan. 1999. Does gender inequality reduce growth and development? Evidence from cross-country regressions. Working Paper No. 7, Policy Research Report on Gender and Development. Washington, D.C.: The World Bank.  Dollar, David, and Roberta Gatti. 1999. Gender inequality, income, and growth: Are good times good for women? Working Paper No. 1, Policy Research Report on Gender and Development. Washington, D.C.: The World Bank.  Morrisson, Christian and Johannes Jütting. 2004. The impacts of social institutions on the economic role of women in developing countries. Working Paper No. 234. Paris: OECD Development Centre.  Morrison, Andrew, Dhushyanth Raju, and Nistha Sinha. 2007. Gender equality, poverty, and economic growth. Policy Research Working Paper No. 4349. Washington, D.C.: The World Bank   Doepke, Matthias, Michele Tertilt, and Alessandra Voena. 2011. The economics and politics of women’s rights. Working Paper.]] When one gender receives fewer legal rights, both the country’s potential labor force and potential pool of entrepreneurs decreases.
• Using Property: This area analyzes women’s ability to own, control, and inherit property. Owning and having an equal say in their use of property not only increases women’s financial security, but is also associated with their increased bargaining power within the household.[[World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]]
• Getting a Job: This area assesses restrictions on women’s work. Restrictions on working hours, sectors, and occupations limit the range of jobs that women can hold and this lead to occupational segregation and confinement of women to low-paying sectors and activities.[[World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]] Many jobs prohibited for women are in highly paid industries, which can have implications for their earning potential. Further, when women are excluded from “male” jobs in the formal sector, an overcrowding can occur in the “female” informal job sector. This leads to a depression of wages for an otherwise productive group of workers.[[Blau, Francine. 1996. Where are We in the Economics of Gender? The Gender Pay Gap. NBER Working Paper 5664.  Ali, Khadija. 2000. Structural adjustment policies and women in the labour market: Urban working women in Pakistan. Third World Planning Review, 22(10).  Fontana, Marzia and Cristina Paciello. 2007. Labour Regulations and Anti-Discrimination Legislation: How Do They Influence Gender Equality in Employment and Pay? Sussex: Institute of Development Studies.]] Research shows that when women have access to employment, investment in children’s health, nutrition, and education often increases, promoting higher levels of human capital.[[Kennedy, E. and P. Peters. 1992. Household food security and child nutrition: the interaction of income and gender of household head. World Development, Vol. 20, Issue 8, August 1992: 1077-1085.  Hoddinott, John, and Lawrence Haddad. 1995. “Does Female Income Share Influence Household Expenditures? Evidence From Cote D’Ivoire.” Oxford Bulletin of Economics & Statistics 57 (1): 77 – 96.  World Bank. 2001. Engendering Development through Gender Equality in Rights, Resources, and Voice. ISBN 0-19-521596-6.  Ranis, Gustav, Frances Stewart and Alejandro Ramirez. 2000. Economic growth and human development. World Development, 28(2): 197-219. Thomas, Duncan. 1990. Intra-household resource allocation: An inferential approach. The Journal of Human Resources, 25(4): 635-664.]]
• Going to Court: This area examines whether women’s testimony in court is given the same evidentiary weight as that of men. Women’s testimonial parity increases equality before the law and protects them in case of legal challenges to contracts and other matters of economic importance where they must give testimony to prove their case.[[Klerman, D. 2006. Legal Infrastructure, Judicial Independence, and Economic Development. Center in Law, Economics and Organization Research Paper Series and Legal Studies Research Paper Series, Research Paper No. C06-1, at 1, 4. Univ. S. Cal. Ctr. In Law Econ. & Org. World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]]
• Protecting Women from Violence: This area examines laws on domestic violence, sexual harassment, and child marriage. Violence can undermine women’s economic empowerment by preventing employment and blocking access to other financial resources.[[World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]] Research shows the earnings of women in formal wage work who are exposed to severe partner violence are significantly lower than women who do not experience such violence.[[Klugman, J., Hanmer, L., Twigg, S., Hasan, T., McCleary-Sills, J., and Santamaria, J. 2014. Voice and Agency: Empowering Women and Girls for Shared Prosperity. Washington, D.C.: World Bank. World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]] Similarly, due to the typically large age differences between girls younger than 18 and their husbands, child brides lack bargaining power in the marriage and have less say over their activities and choices, including education and economic activity.[[UNICEF. 2005. Early Marriage: A Harmful Traditional Practice a Statistical Exploration. New York, N.Y.: UNICEF. World Bank. 2016. Women, Business, and the Law 2016: Getting to Equal. Washington, D.C.: World Bank.]] Child marriage--through reduced decision-making power, greater likelihood of school dropout and illiteracy, lower labor force participation and earnings, and less control over productive household assets—severely impedes the economic opportunities of young women.[[Parsons, E., Kes A., Petroni, S., Sexton M., and Wodon Q. 2015. Economic Impacts of Child Marriage: A Review of the Literature. International Bank for Reconstruction and Development: Taylor & Francis. Duflo, E. 2011. Women’s Empowerment and Economic Development. Cambridge: National Bureau of Economic Research. Wodon, Q., Nguyen, M.C., and Tsimpo, C. 2016. Child Marriage, Education, and Agency in Uganda. Feminist Economics 22:1, 54-79]]

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