Public Service Delivery and Empowerment
Edited by Anil B. Deolalikar, Shikha Jha and Pilipinas F. Quising
Chapter 3: Do governance indicators explain growth performance? A cross-country analysis
Development policy discussions in recent years have focused on the need for good governance. While the intrinsic value of good governance as a development end is now universally accepted, its instrumental value as a means to better development performance is still not well understood, despite the emergence of a considerable and still growing body of literature (Rodrik 2008; Acemoglu and Robinson 2012). Two important developments explain the rising concern over governance and its role in development since the late 1980s. One is the emergence of a new stream of the economics literature known as the new institutional economics. This emphasizes impersonal and impartial institutions for protecting property rights and contracts, which encourage the extension of market exchange, investment and innovation. The second development is increasing concern that the effectiveness of development assistance depends not only on the nature of the policies pursued, but also on the nature of government (Burnside and Dollar 2000, for example). On the basis of empirical observations, Easterly (2006) argues that countries pursuing destructive policies such as high inflation, high black market premiums and chronically high budget deficits may miss out on economic growth, but that it does not follow that growth can simply be created with macroeconomic stability.
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