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Governance Redux: The Empirical Challenge

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  • Kaufmann, Daniel

Abstract

Building from the 2002/03 contribution to the Global Competitiveness Report ("Governance Crossroads"), this paper argues that governance continues to be at a crossroad, its underperformance being evident in most regions and across many countries. This ('governance policy gap') contrasts with the strides that have been made in many countries in improving the content of macro-economic policies for well over a decade. Firms from emerging economies single out corruption and excessive bureaucracy among the top constraints to their business operations, while excessive bureaucracy and the tax regime are identified as top constraints by the respondent firms from the OECD. Neither inflation nor the exchange rate regime are rated as important constraints. Many countries currently have levels of governance that are insufficient to support their income levels and/or growth path, namely they experience a 'governance deficit', which we suggest it can be quantified. We also review work analyzing the deeper determinants of governance, and find that in lower income countries the origins of a country's legal system may not matter significantly. Further, we empirically evaluate political dimensions of governance, such as the extent of 'capture' and undue influence by some politically connected powerful firms in shaping the regulations, laws and policies in a country. Unequal influence is closely associated with poor public and financial governance performance. Finally, this firm-level dataset permits the construction of a governance database at the city level, and initial results of an empirical exploration of determinants of city-level governance are presented. A key implication of this chapter refers to the focus on policies aimed at the nexus between corporate strategies and public governance—-emphasizing prevention, external accountability and transparency mechanisms—and challenges the value of traditional measures within the public sector (such as passing laws by fiat or creating new Anti-Corruption Commissions).

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  • Kaufmann, Daniel, 2003. "Governance Redux: The Empirical Challenge," MPRA Paper 8210, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8210
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    Cited by:

    1. Gouranga Gopal Das & Soamiely Andriamananjara, 2006. "Hub-and-Spokes Free Trade Agreements in the Presence of Technology Spillovers: An Application to the Western Hemisphere," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(1), pages 33-66, April.
    2. Steven Globerman & Daniel Shapiro, 2005. "Assessing International Mergers and Acquisitions as a Mode of Foreign Direct Investment," Chapters, in: Lorraine Eden & Wendy Dobson (ed.), Governance, Multinationals and Growth, chapter 5, Edward Elgar Publishing.
    3. M.G. Quibria, 2006. "Does Governance Matter? Yes, No or Maybe: Some Evidence from Developing Asia," Kyklos, Wiley Blackwell, vol. 59(1), pages 99-114, February.
    4. Axel Dreher & Martin Gassebner & Lars-H.R. Siemers, 2007. "Does Terror Threaten Human Rights? Evidence from Panel Data," KOF Working papers 07-156, KOF Swiss Economic Institute, ETH Zurich.
    5. World Bank, . "Honduras : Investment Climate Assessment, Volume 2. Main Report," World Bank Other Operational Studies, The World Bank, number 14556.
    6. Haggard, Stephan & Tiede, Lydia, 2011. "The Rule of Law and Economic Growth: Where are We?," World Development, Elsevier, vol. 39(5), pages 673-685, May.
    7. Denyer Willis, Graham & Mota Prado, Mariana, 2014. "Process and Pattern in Institutional Reforms: A Case Study of the Police Pacifying Units (UPPs) in Brazil," World Development, Elsevier, vol. 64(C), pages 232-242.
    8. Berhanu Nega, 2011. "Short Changing the Value of Democracy for Economic Development in Africa," Forum for Social Economics, Taylor & Francis Journals, vol. 40(3), pages 313-334, January.
    9. Christophe LAVIALLE, 2009. "Arab Mediterranean Countries Facing the "Second Generation" of Reforms: A Political Economy Standpoint," LEO Working Papers / DR LEO 241, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    10. Andvig, Jens Chr., 2006. "Corruption and fast change," World Development, Elsevier, vol. 34(2), pages 328-340, February.

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    More about this item

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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