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Governance and returns on investment : an empirical investigation

  • Isham, Jonathan
  • Kaufmann, Daniel
  • Pritchett, Lant

Using data from the World Bank's Operations Evaluation Department, the authors examine the link between the performance of Bank-financed projects and various indicators of country governance. They find that: there is a strong statistical, and possibly casual, link between civil liberties and project performance. After controlling for a variety of determinants of project performance, they find that in countries with the best civil liberties records projects have an economic rate of return between 8 and 22 percentage points higher than the rate of return in countries with the worst civil liberties. (The average rate of return in the sample is 6 percent). The typical political regime (whether authoritarian or democratic) and the status of more purely political liberties do not appear to significantly affect project performance.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1550.

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Date of creation: 30 Nov 1995
Date of revision:
Handle: RePEc:wbk:wbrwps:1550
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  1. Shea, J., 1993. "Instrument Relevance in Linear Models: A Simple Measure," Working papers 9312, Wisconsin Madison - Social Systems.
  2. Abbas Pourgerami, 1988. "The political economy of development: A cross-national causality test of development-democracy-growth hypothesis," Public Choice, Springer, vol. 58(2), pages 123-141, August.
  3. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  4. Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, World Bank Group, vol. 8(3), pages 351-71, September.
  5. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  6. Paul, Samuel, 1992. "Accountability in public services: Exit, voice and control," World Development, Elsevier, vol. 20(7), pages 1047-1060, July.
  7. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, vol. 49(2), pages 505-13, March.
  8. Isham, Jonathan & Narayan, Deepa & Pritchett, Lant, 1995. "Does Participation Improve Performance? Establishing Causality with Subjective Data," World Bank Economic Review, World Bank Group, vol. 9(2), pages 175-200, May.
  9. Scully, Gerald W, 1988. "The Institutional Framework and Economic Development," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 652-62, June.
  10. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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