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Governance and Institutional Quality and the Links with Economic Growth and Income Inequality: With Special Reference to Developing Asia

Author

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  • Zhuang, Juzhong

    (Asian Development Bank)

  • de Dios, Emmanuel

    (University of the Philippines Diliman)

  • Lagman-Martin, Anneli

    (Asian Development Bank)

Abstract

This paper looks at the role of governance and institutions in supporting growth and broadening inclusiveness with a special reference to developing Asia. While the intrinsic value of good governance and institutions as ends of development in their own right is now universally accepted and underlies the very notion of inclusiveness, their instrumental value as a means toward better growth performance and more equal income distribution is still not well understood—despite the emergence of a large literature. This paper provides a review of this still growing literature, and, in the process, takes a close look at two critical issues that have attracted a great deal of attention: the measurement of governance and institutional quality, and direction of causality between institutional development and economic development. The paper then examines where developing Asia stands in various widely used measures of governance/ institutional quality relative to the rest of the world, and the power of governance indicators in explaining cross-country variations in growth performance and income inequality in the region. The paper argues that given its intrinsic value and positive association with the level of development, good governance should be pursued in all dimensions as a basic development goal. To maximize its instrumental value, the current literature points to the need for recognizing the context-specific nature of the linkages between governance and institutional quality, on one hand, and growth and inequality, on the other, and for focusing on the aspects that are most binding and critical to a country’s development in a particular period. The empirical analysis shows that developing Asian economies with government effectiveness, regulatory quality, and rule of law scoring above the global means (after controlling for per capita income) in 1998 grew faster on average during 1998- 2008 (by 1.6, 2.0, and 1.2 percentage points annually, respectively) than those economies scoring below the global means. On the basis of these findings, the paper argues that improving governance in these dimensions could be used as potential entry points of development strategies for many countries in the region. The paper also highlights the need for more efforts to improve the measurement of governance and institutional quality and more research to better understand the complex relationships between institutional and economic developments.

Suggested Citation

  • Zhuang, Juzhong & de Dios, Emmanuel & Lagman-Martin, Anneli, 2010. "Governance and Institutional Quality and the Links with Economic Growth and Income Inequality: With Special Reference to Developing Asia," ADB Economics Working Paper Series 193, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0193
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    Citations

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    Cited by:

    1. Emmanuel S. de Dios & Geoffrey M. Ducanes, 2013. "Institutions and governance," Chapters,in: Asia Rising, chapter 2, pages 49-75 Edward Elgar Publishing.
    2. Jayakar, Krishna & Martin, Brandie, 2012. "Regulatory governance in African telecommunications: Testing the resource curse hypothesis," Telecommunications Policy, Elsevier, vol. 36(9), pages 691-703.
    3. repec:ers:journl:v:xx:y:2017:i:3b:p:99-111 is not listed on IDEAS
    4. Noha EMARA & I-Ming CHIU, 2016. "The Impact of Governance Environment on Economic Growth: The Case of Middle Eastern and North African Countries," Journal of Economics Library, KSP Journals, vol. 3(1), pages 24-37, March.
    5. Ahmadov, Ingilab & Mammadov, Jeyhun & Aslanli, Kenan, 2013. "Assessment of Institutional Quality in Resource-Rich Caspian Basin Countries," MPRA Paper 47430, University Library of Munich, Germany.
    6. Ageliki Anagnostou & Dimitris Kallioras & Christos Kollias, 2016. "Governance Convergence Among the EU28?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(1), pages 133-146, October.
    7. Saima Nawaz & Nasir Iqbal & Muhammad Arshad Khan, 2014. "The Impact of Institutional Quality on Economic Growth: Panel Evidence," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(1), pages 15-31.
    8. repec:ana:journl:v:3:y:2017:i:2:p:3-24 is not listed on IDEAS
    9. Jeyhun Mammadov & Assoc. Prof. Dr. Jeyhun Mammadov & Prof. Dr. Ingilab Ahmadov & PhD candidate, Kenan Aslanli, 2013. "Assessment of Institutional Quality in Resource Rich Caspian Basin Countries," International Conference on Energy, Regional Integration and Socio-economic Development 5994, EcoMod.
    10. Diana Larisa Tampu, 2015. "Human motivation and corporate governance," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 4(2), pages 177-193.
    11. H. Brooks, Douglas & Hasan, Rana & Lee, Jong-Wha & H. Son, Hyun & Zhuang, Juzhong, 2010. "Closing Development Gaps: Challenges and Policy Options," Asian Development Review, Asian Development Bank, vol. 27(2), pages 1-28.
    12. repec:ers:journl:v:xx:y:2017:i:3a:p:124-132 is not listed on IDEAS

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