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Good governance and trade policy : are they the keys to Africa's global integration and growth?

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  • Ng, Francis
  • Yeats, Alexander

Abstract

Economists often argue that the level and structure of a country's trade barriers and the quality of its governance policies (for example, regulating foreign investment or limiting commercial activity with red tape) have a major influence on its economic growth and performance. One problem testing those relations empirically was the unavailability of objective cross-country indices of the quality of governance and statistics on developing countries'trade barriers. The authors use new sources of empirical information to test the influence of trade and governance policies on economic performance. They use a model similar to those used in the literature on causes and implication of economic growth but focus more heavily on the World Bank's index of the speed with which countries are integrating into the world economy. Their results show that countries that adopted less restrictive governance and trade policies achieved significantly higher levels of per capita GDP; experienced higher growth rates for exports, imports, and GDP; and were more successful integrating with the world economy. Regression results indicate that national trade and governance regulations explain over 60 percent of the variance in some measures of economic performance, implying that a country's own national policies shape its rate of development, industrialization, and growth. Their tests provide new insights into the phenomenon of economic"convergence,"showing that poorer open countries are integrating more rapidly into the global economy than others. This finding parallels what others have observed about economic growth rates. They test their empirical results in a case study asking whether inappropriate national policies have caused Sub-Saharan Africa's dismal economic performance. The evidence strongly supports this proposition. Indices of the quality of national governance show that African countries have generally adopted the most inappropriate (restrictive) fiscal, monetary, property, and wage policies and that their own trade barriers (including customs procedures constraining commercial activity) are among the world's highest. Improving African trade and governance policies to levels currently prevailing in such (non-expecptional) countries as Jordan, Panama, and Sri Lanka would be consistent with a seven fold increase in per capita GDP (to about $3,500) and an annual increase of 3 or 4 percentage points in the growth rate for this variable.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2038.

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Date of creation: 31 Jan 1999
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Handle: RePEc:wbk:wbrwps:2038

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Related research

Keywords: Trade Policy; Environmental Economics&Policies; Decentralization; Economic Theory&Research; Payment Systems&Infrastructure; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Environmental Economics&Policies; Governance Indicators; Trade Policy;

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References

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  1. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, October.
  2. Amjadi, Azita & Reinke, Ulrich & Yeats, Alexander, 1996. "Did external barriers cause the marginalization of sub-Saharan Africa in world trade?," Policy Research Working Paper Series 1586, The World Bank.
  3. Ng, Francis & Yeats, Alexander, 1997. "Open economies work better! did Africa's protectionist policies cause its marginalization in world trade?," World Development, Elsevier, vol. 25(6), pages 889-904, June.
  4. Patrick Low & Alexander Yeats, 1995. "Nontariff Measures and Developing Countries: Has the Uruguay Round Leveled, the Playing Field?," The World Economy, Wiley Blackwell, vol. 18(1), pages 51-70, 01.
  5. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  6. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June.
  7. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  8. Amjadi, A. & Reincke, U. & Yeats, A.J., 1996. "Did External Barriers Cause the Marginalization of Sub-Saharan Africa in World Trade," World Bank - Discussion Papers 348, World Bank.
  9. Kravis, Irving B, 1970. "Trade as a Handmaiden of Growth: Similarities between the Nineteenth and Twentieth Centuries," Economic Journal, Royal Economic Society, vol. 80(323), pages 850-72, December.
  10. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February.
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Cited by:
  1. Polimeni, John M. & Iorgulescu Polimeni, Raluca & Trees, W. Scott, 2007. "Extending The Augmented Solow Growth Model To Explain Transitional Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(1), pages 65-76, March.
  2. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," World Bank Research Observer, World Bank Group, vol. 15(1), pages 99-135, February.
  3. Bagai, Shweta & Wilson, John S., 2006. "The data chase : what's out there on trade costs and nontariff barriers ?," Policy Research Working Paper Series 3899, The World Bank.

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