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

Author

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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.

Suggested Citation

  • Ng, Francis & Yeats, Alexander, 1999. "Good governance and trade policy : are they the keys to Africa's global integration and growth?," Policy Research Working Paper Series 2038, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2038
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    References listed on IDEAS

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    2. Mohamed Ismail Sabry, 2022. "Arab-German Trade and Institutions: The Effect of Good Governance on Arab Exports to Germany," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(5), pages 2400-2437, October.
    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.
    4. Ahmed, Wasim & Hussain, Safdar & Jafar, Rana Muhammad Sohail & Guang-Ju, Wang & Rabnawaz, Ambar & Saqib, Zulkaif Ahmed & JianZhou, Yang, 2016. "Impacts of Trade Liberalization on Dairy Industry in China," MPRA Paper 70385, University Library of Munich, Germany.
    5. 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.
    6. Nihal Pitigala, 2010. "Global Economic Crisis and Developing Countries," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 11(1), pages 1-20, March.
    7. Florin Alexandru LUCA & Ana Iolanda VODĂ & Dumitru FILIPEANU, 2014. "Current Trends In The Foreign Trade," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 5, pages 393-400, November.
    8. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," The World Bank Research Observer, World Bank Group, vol. 15(1), pages 99-135, February.

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