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Creating a Cost-of-Doing-Business Index

Author

Listed:
  • Alexandru Voicu

    (Rutgers University, Economics Department)

  • Michael L. Lahr

    (Rutgers University, Center for Urban Policy Research)

Abstract

In this paper we develop an index for comparing the cost of doing business across several metropolitan areas in the U.S. Such indices can be used as leading indicators of metropolitan economic growth. To create the index, we first identify factors that influence the change in business activity in metropolitan areas. We then create an instrument that allows us to compare the metropolitan areas on the basis of the climate that they provide for business development. We use both industry-based and pooled techniques to derive such an index. The index's variance decreases as the time horizon for which it is used increases. This is due in part to the declining influence of taxes. Although the industry-based estimates were hypothesized to be more accurate, the pooled technique facilitated statistical comparisons of the index across metropolitan areas. Based on the findings of the pooled regression, we find that automatic interpretation of higher values as denoting metropolitan areas with higher costs may often be invalid.

Suggested Citation

  • Alexandru Voicu & Michael L. Lahr, 2004. "Creating a Cost-of-Doing-Business Index," Urban/Regional 0403008, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpur:0403008
    Note: Type of Document - pdf; pages: 37
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0403/0403008.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Business Costs; Index; Metropolitan;
    All these keywords.

    JEL classification:

    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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