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How Globalisation Improves Governance

Author

Listed:
  • Fecerico Bonaglia

    (OECD Development Centre)

  • Jorge Braga de Macedo

    (OECD Development Centre)

  • Maurizio Bussolo

    (OECD Development Centre)

Abstract

Globalisation, governance and economic performance affect each other in very complex mutual relationships. In this paper, we establish a clear and well-circumscribed hypothesis: “is there an effect of globalisation on governance?” To test this hypothesis or, even more specifically, to test how openness can affect the quality of domestic institutions, we survey available theoretical explanations of causal relationships between globalisation and governance. Microeconomic theory helps us identify trade policy, competition by foreign producers and international investors, and openness-related differences in institution building costs and benefits, as three major transmission mechanisms through which openness affects a country’s corruption levels. Examining a large sample of countries covering a 20-year long period, we found robust empirical support for the fact that increases in import openness do indeed cause reductions in corruption, a crucial aspect of governance. The magnitude of the effect is also quite strong. After controlling for many cross-country differences, openness’ influence on corruption is close to one third of that exercised by the level of development. Some cautious policy conclusions are derived.

Suggested Citation

  • Fecerico Bonaglia & Jorge Braga de Macedo & Maurizio Bussolo, 2002. "How Globalisation Improves Governance," International Trade 0211005, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0211005
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Corruption; globalisation; governance; international trade.;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F19 - International Economics - - Trade - - - Other
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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