This document summarizes a presentation on whether countries with poor governance can sustain economic growth. It discusses how the BRIC countries (Brazil, Russia, India, China) may account for over half of the world's economy by 2025. While China and India may be among the six largest economies, governance is a challenge. Governance indicators show problems with accountability, political stability, and corruption in Russia, India and China. Case studies examine governance issues in China and India, such as road safety in China and poverty, corruption and bureaucracy in India. The implications are that governance and strong institutions may be important for competitiveness and limiting economic growth, though other factors like demographics and resources could also influence a country's success.

1. Can we build on the BRICs?
Prepared for: AIB SE 2013 Conference
Presenter: Ilan Alon, Ph.D.
Cornell Professor of International Business, Rollins
College
Visiting Scholar and Asia Fellow, Harvard University

2. Dreaming with BRICs



By 2025, BRIC will account for over half the
size of the G6
Of the current G6, only the US and Japan may
be among the six largest economies in US
dollar terms in 2050
The largest economies in the world (by GDP)
may no longer be the richest (by income per
capita)

3. Overtaking the G6 Countries

4. 2050 Largest Economies

5. Latest World Bank GDP data

6. Research Question

Can a country with bad governance sustain
economic growth and competitiveness?



Russia
China
India

7. What is Governance?

Traditions and institutions by which authority
in a country is exercised



Process by which governments are selected,
monitored, replaced
Capacity of government to effectively formulate
and implement sound policies
Respect of citizens and the state for the
institutions that govern economic and social
interactions among them
(Kaufmann and Kraay, 2007)

9. 1. Voice and Accountability

10. 2. Political Stability

11. 3. Government Effectiveness

12. 4. Regulatory Quality

13. 5. Rule of Law

14. 6. Control of Corruption

15. China: Collapse or Rule?
Martin Jacques
Gordon Chang

17. China Example: Rules of the Road - Institutions



Largest number of
fatalities, despite low
number of passenger
miles
Guanxi not unique to
China (relationship based
economies)
Implication to transition

18. India example: key challenges







Poor (remember Maslow)
Corruption
Inequality
Gridlock in government
Caste system
Religious fractionalization
Red tape…

19. India Governance Indicators

20. Russia over time

21. Russia Example




Dividends of economic (and political)
liberalization: Perestroika (restructuring) and
Glasnost (opening)
Improvements in governance in the period
following the Russian economic crisis (1998)
Run up in prices of oil and other commodities
Slippage into autocracy and lack of control of
corruption has limited growth potential

22. Research on Russian Governance



Informal rules (e.g., blat, organized crime)
sometimes conflict with formal rule (rule of law)
Governance suffers from Trust, Transparency,
Enforcement of Law (Judge and Naoumova, 2004)
Selective prosecution of uncooperative elites

23. Russian Stock Market vs. S&P

24. Nicolay II the Expiator

“There are
treachery
cowardice
and a deceit
everywhere
around us”

25. Alexander III the Peacekeeper

“Russia in all
over the
world always
had just two
loyal friends:
army and
fleet”

26. Research Implications

Do governance and institutions matter?






Can countries lead the world economically and still have a
bad governance?
Can countries improve competitiveness regardless of
governance?
What are the implications to international institutions?
What are the implications to companies?
What are the roles of demographics? Energy prices?
Geopolitical positioning?
Triad powers are here to stay: Europe, US and Japan

New players will need to adapt; change the rules; takeover

27. Role of Government






Government ownership
 Some key industries are dominated by state
owned enterprises
 Government involvement in key firms high
(Judge and Naoumova, 2004) e.g. Yukos
Government legislates the rules
Government enforces the rules
Connection to government is important
Competition is unfair and unequal
Market efficiency is lost