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Governance Quality and Economic Growth

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  • Tao Kong

Abstract

Among both academics and the wider development community there seems to be a general acceptance of the value of good governance and its role in promoting economic growth. However, beyond this general statement, there is a lack of deeper theoretical understanding as to why good governance is expected to foster economic growth and how such effects may take place. We de.ne governance quality as the capacity of a government to internalize externality. A theoretical model is developed to formally integrate governance quality into an endogenous growth framework. We elucidate the underlying mechanisms, through which governance quality affects economic performance: governance quality affects the productivity of public investment and in turn has an impact on economic performance. We also highlight that the endogeneity of governance quality and development stages have strong implications for the governance-growth relationship.

Suggested Citation

  • Tao Kong, 2011. "Governance Quality and Economic Growth," ANU Working Papers in Economics and Econometrics 2011-537, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2011-537
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp537.pdf
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    References listed on IDEAS

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    1. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
    2. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-625, December.
    3. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    4. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Nuevo gobierno: ¿mejor gobernanza y crecimiento?
      by Florentino Felgueroso in Nada Es Gratis on 2011-12-16 11:56:48

    Citations

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    Cited by:

    1. Marion Payen & Patrick Rondé, 2020. "Culture, Institutions and Economic Growth," Working Papers of BETA 2020-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Dogaru Dorin-Madalin, 2015. "Public Policy, Quality Of Intitution And Economic Growth In Central And Eastern European Countries," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 239-245, April.

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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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