There are diverse ideas about governance around the world, and this paper studies them through the following questions: (a) what does the available evidence tell us about the political and institutional requirements for sustained economic growth? (b) What do we need from the state to secure growth? (c) How do a country’s internal characteristics support or impede its growth? (d) How does the external environment of a country influence its economic growth prospects? These elements are then put together into a model of growth, from which we derive conclusions about governance arrangements. Thus the paper outlines a simple framework within which to think about the political economy of growth that can be summed up in five points: good government, with secure political conditions; credible macroeconomic stability; savings and investment high enough to sustain adequate growth; openness to the world economy; and the discipline of external engagement. It then argues that the growth model needs to be underpinned by suitable governance arrangements, and suggests that good governance has two main elements, each quite complex in practice, namely: protection of property rights, and accountability of government.
Authored by: Paul Hare
Published in 2007
Role of the Private Sector in Conflict Prevention in Pakistan
Safwan A. Khan
Vaqar Ahmed
Sustainable Development Policy Institute
Stability: International Journal of Security & Development, 3(1): 24, pp. 1-9, DOI: http://dx.doi.org/10.5334/sta.dv
1. The document discusses the role that institutions play in the process of economic development. It argues that institutions, both formal and informal, shape the incentives and behaviors of individuals in ways that can either promote or hinder economic growth.
2. Effective institutions that protect property rights, enforce contracts, and reduce uncertainty are necessary for sustainable economic development. However, institutions must also arise endogenously based on local knowledge and context in order to be sustainable.
3. The example of Botswana is discussed as a case where institutions developed in a way that was compatible with local culture and traditions, leading to endogenous economic success.
Recent work on the so-called resource curse has focused on the importance of the interaction between institutional quality and resource abundance. The combination of low quality institutions and easily appropriable resources (such as oil and minerals) tend to be particularly bad for economic development. On the other hand, if institutions are good these same resources contribute more to economic growth than other types of natural wealth. While certainly pointing in the right direction this strand of literature leaves some open questions. First, it is vague on the precise channels through which institutional quality operates. Second, the empirical measures of institutions are often composite measures that arguably include measures of institutional outcomes rather than durable “rules of the game”. Using data for the period 1970-2003, this paper study the extent to which combinations of resource-types and constitutional setup determine the degree of appropriative activity in a country. Our results show that parliamentary regimes and majoritarian electoral systems are associated with less (or no) resource curse-effect than are presidential and proportional electoral systems. These effects are particularly strong in countries having much ores, metals and fuels.
By Jesper Roine (with A. Boschini and J. Pettersson), proceedings from "Meeting Global Challenges in Research Cooperation", Uppsala.
This document discusses inter-ministerial policy coordination (IMPC) and its role in governance. It provides background on definitions of governance, challenges in transition economies, and the importance of coordination across government ministries to effectively participate in international regimes. The document focuses on IMPC as a crucial governance mechanism and discusses how coordination enables better performance and prevents fragmentation across government organizations.
This document summarizes a research paper that studied determinants of income inequality using top income share data from 16 countries over the 20th century. The paper finds that periods of high economic growth disproportionately increase the income share of the top 1% while reducing the share of the next 9%. Financial development also increases top shares, especially in early stages of development. Government spending reduces shares for the upper middle class but not the top 1%. Higher taxes reduce top shares significantly over the long run. Trade openness has no clear effect on inequality.
China goes Global: Present Theories and Future DirectionsIlan Alon
Chinese globalization is upon us. But the Chinese companies internationalization, speed of internationalization and mode of entry follow a different pattern from their Western peers. The talk will review the extant literature and theories and suggest new ways to think about and research China’s drive to global markets.
This report is designed to help social entrepreneurs benchmark their organisation against fellow social enterprises in Sweden. We hope the report can help social enterprises to better place their organisation (e.g. what makes it distinct; readily spot differences and similarities with their peers). The report will also be useful for support organisations and policy makers to obtain an overview of social enterprises in Sweden. If this report can be put to any other good uses, we would be most delighted. Of course a rich database like ours contains many more insights and policy implications, which will soon be published on www.seforis.eu.
This document summarizes a research paper that examines the economic development effects of coups. It finds that coups overthrowing democratic governments have distinctly negative effects on economic growth, lowering GDP per capita by 1-1.3% per year over a decade. By contrast, coups in autocratic countries show smaller and imprecise positive effects. These results are robust across different empirical methods and not explained by alternative hypotheses. Additionally, coups reversing economic reforms, increasing debt, and reducing social spending, suggesting a shift in priorities away from the public.
Role of the Private Sector in Conflict Prevention in Pakistan
Safwan A. Khan
Vaqar Ahmed
Sustainable Development Policy Institute
Stability: International Journal of Security & Development, 3(1): 24, pp. 1-9, DOI: http://dx.doi.org/10.5334/sta.dv
1. The document discusses the role that institutions play in the process of economic development. It argues that institutions, both formal and informal, shape the incentives and behaviors of individuals in ways that can either promote or hinder economic growth.
2. Effective institutions that protect property rights, enforce contracts, and reduce uncertainty are necessary for sustainable economic development. However, institutions must also arise endogenously based on local knowledge and context in order to be sustainable.
3. The example of Botswana is discussed as a case where institutions developed in a way that was compatible with local culture and traditions, leading to endogenous economic success.
Recent work on the so-called resource curse has focused on the importance of the interaction between institutional quality and resource abundance. The combination of low quality institutions and easily appropriable resources (such as oil and minerals) tend to be particularly bad for economic development. On the other hand, if institutions are good these same resources contribute more to economic growth than other types of natural wealth. While certainly pointing in the right direction this strand of literature leaves some open questions. First, it is vague on the precise channels through which institutional quality operates. Second, the empirical measures of institutions are often composite measures that arguably include measures of institutional outcomes rather than durable “rules of the game”. Using data for the period 1970-2003, this paper study the extent to which combinations of resource-types and constitutional setup determine the degree of appropriative activity in a country. Our results show that parliamentary regimes and majoritarian electoral systems are associated with less (or no) resource curse-effect than are presidential and proportional electoral systems. These effects are particularly strong in countries having much ores, metals and fuels.
By Jesper Roine (with A. Boschini and J. Pettersson), proceedings from "Meeting Global Challenges in Research Cooperation", Uppsala.
This document discusses inter-ministerial policy coordination (IMPC) and its role in governance. It provides background on definitions of governance, challenges in transition economies, and the importance of coordination across government ministries to effectively participate in international regimes. The document focuses on IMPC as a crucial governance mechanism and discusses how coordination enables better performance and prevents fragmentation across government organizations.
This document summarizes a research paper that studied determinants of income inequality using top income share data from 16 countries over the 20th century. The paper finds that periods of high economic growth disproportionately increase the income share of the top 1% while reducing the share of the next 9%. Financial development also increases top shares, especially in early stages of development. Government spending reduces shares for the upper middle class but not the top 1%. Higher taxes reduce top shares significantly over the long run. Trade openness has no clear effect on inequality.
China goes Global: Present Theories and Future DirectionsIlan Alon
Chinese globalization is upon us. But the Chinese companies internationalization, speed of internationalization and mode of entry follow a different pattern from their Western peers. The talk will review the extant literature and theories and suggest new ways to think about and research China’s drive to global markets.
This report is designed to help social entrepreneurs benchmark their organisation against fellow social enterprises in Sweden. We hope the report can help social enterprises to better place their organisation (e.g. what makes it distinct; readily spot differences and similarities with their peers). The report will also be useful for support organisations and policy makers to obtain an overview of social enterprises in Sweden. If this report can be put to any other good uses, we would be most delighted. Of course a rich database like ours contains many more insights and policy implications, which will soon be published on www.seforis.eu.
This document summarizes a research paper that examines the economic development effects of coups. It finds that coups overthrowing democratic governments have distinctly negative effects on economic growth, lowering GDP per capita by 1-1.3% per year over a decade. By contrast, coups in autocratic countries show smaller and imprecise positive effects. These results are robust across different empirical methods and not explained by alternative hypotheses. Additionally, coups reversing economic reforms, increasing debt, and reducing social spending, suggesting a shift in priorities away from the public.
This document provides a theoretical analysis of how corruption and business interests interact to influence institutional reforms. It develops a political-economic model where a government sets an optimal institutional level considering the costs of the policy on foreign direct investment and citizens. A corrupted lobby group representing dishonest civil servants makes political contributions to influence the government to adopt a lower institutional level that benefits illegal structures. The analysis finds that the optimal institutional level depends on the relative efficiency of legal versus illegal structures for paying fiscal costs.
Advanced EC seminar on decentralisation and local governance
European Commission EuropeAid
2-5 July 2012, Brussels
The seminar reviewed the country context and the evolving international development framework and considered how to manage the political dimensions of decentralisation. It also looked at using decentralisation as a trigger to foster better development outcomes and governance and what all this means for future EU engagement in decentralisation and local governance. Jean Bossuyt, ECDPM, was the lead facilitator of this meeting. Alisa Herrero, ECDPM, was also one of the experts facilitating this seminar.
Public service transformation in africa key note speechMwiza Helen
The document discusses the differences between the state and government. The state refers to the overall political community that exists independently of any particular government. It is a permanent institution defined by its territory, population, and sovereignty. In contrast, government is a temporary institution that can change and is made up of the specific people and institutions that administer public policy. While the state is permanent, governments rise and fall. The document also examines how the roles of government, the private sector, and non-state actors have become blurred in recent decades.
1) The document summarizes research on the role of human capital in different types of regions, including urban, rural, peripheral, and cross-border regions.
2) Two papers examined how human capital mobility impacts local employment in Danish municipalities, finding that in-migrants and in-commuters generally complement the local workforce except in some cases where they substitute medium-skilled locals.
3) A second paper analyzed the spatial mobility and early career outcomes of university graduates in Denmark, finding benefits to mobility for academic but not professional graduates.
4) The research also developed a model of "Cross-Border Institutional Thickness" to examine institutional cooperation and human capital creation in Danish-German border regions.
Our research is to discuss the influence of interstate economic relation on MNCs’ (MultiNational
Company) OFDI (outward foreign direct investment) location choice. Although there are many researches
about the effect of interstate bargaining tier on OFDI location choice, most of them focuses on interstate
bargaining power from political aspects.
The institutional reforms in many countries since
the 1990s were introduced to attract more inward foreign
direct investments (FDI). The findings of institutional theory
and its economic application within the concept of the new
institutional economics have confirmed its benefits as a
valuable framework in analyzing the FDI determinants and
for supporting the creation of the appropriate economic
policies. After evaluating the theoretical concepts of institutional
theory, new institutional economics and selected
empirical research on the role of institutions as FDI determinants,
we conclude by focusing on three research areas
and related improvements that deserve additional attention
from interested scholars. These are: introducing and generalizing
the use of governance indicators at the regional level,
better understanding the impact, and strengthening the
importance of informal institutional variables in empirical
models of FDI flows and emphasizing sectoral analysis of
FDI determinants.
Real estate, followed by infrastructure, dominate real asset investing, according to a new global study. Learn why in our new report sponsored by BlackRock. More information: http://bit.ly/AraBlk
China Goes Global: Practice, Theory and PolicyIlan Alon
The globalization of Chinese enterprises is already upon us and China is now one of the leading international investors. Alon summarizes the state of the art on the practice, theory and policy of the internationalization of Chinese enterprises. He examines extent of Chinese investment abroad, relevant theories of emerging markets multinationals and policy issues that arise with the increased investment from the Communist regime.
This document analyzes survey data from over 40 developing countries to understand determinants of radicalism, support for violence, and participation in anti-regime actions. It finds that individuals who feel politically and economically marginalized are more likely to harbor extremist views but less likely to join collective political movements. This potentially explains why marginalized groups are difficult to mobilize in nation-wide movements, despite their attitudes. It also finds that arenas for active political participation are more likely dominated by upper-middle income groups committed to preserving the status quo. Suppressing these forms of participation may push these groups towards more radical preferences. The findings suggest the poor may be caught in a cycle of increasing self-exclusion and marginalization.
Rethink the politics of development in Africa? how the political settlement s...Dr Lendy Spires
This document analyzes how the distribution of political power within ruling coalitions in Ghana shaped the allocation of resources to the education sector from 1993 to 2008. It finds that under both the NDC and NPP governments, regions with more powerful factions within the ruling coalition received more education spending per capita compared to need. A political settlements approach focusing on how power is distributed within ruling coalitions provides insights into how politics influences development outcomes in Africa.
Arrangements by which influential firms receive economic favors, has been documented in numerous case studies but rarely formalized or analyzed quantitatively. We offer a formal voting model in which political influence is modeled as a contract by which politicians deliver a more preferential business environment to favored firms who, in exchange, protect politicians from the political consequences of high unemployment. From this perspective, cronyism simultaneously lowers a firm’s fixed costs while raising its variable wage costs. Testing several of the implications of the model on firm-level data from 26 transition countries, we find that more influential firms face fewer administrative and regulatory obstacles and carry bloated payrolls, but they also invest and innovate less. These results do not change when using propensity-score matching to adjust for the fact that influence is not randomly assigned.
Xiaoou Zhu Publication Development FinanceXiao'ou Zhu
This document summarizes a research article that examines China's foreign assistance program through a case study of Chinese involvement in post-war Sri Lanka. It argues that China's foreign assistance has shifted from a top-down, state-directed model to one driven by increasingly autonomous Chinese state-owned enterprises. Through their activities in Sri Lanka, these SOEs now play a key role in identifying business opportunities, shaping foreign assistance policies, and bridging the gap between host countries and the Chinese state to fulfill their own commercial interests. However, this new paradigm led by SOEs is less able to address issues like debt sustainability and geopolitical tensions in recipient countries. The document proposes greater inclusion of the private sector and civil society in China's overseas
Innovation a modern model for estimating volume of money launderingAlexander Decker
This document summarizes research on estimating the volume of money laundering using a new mathematical model. It introduces previous methods for estimating money laundering that have limitations and errors. The study applies a combination of the Bhatta charya method and arithmetic methods based on Tikhonov's regularization strategy and inverse problem to introduce a new equation for assessing the quantity of dirty money. It aims to explain economic modeling and introduce an improved method without assumptions of other approaches.
Women Leading Growth: An Empirical Analysis on the Effects of Women in Leader...Avril Espinosa-Malpica
UBC Economics 490: Seminar In Applied Economics Research Essay
250 years ago the wealthiest country was at most four times richer than the poorest country. Today the richest country is almost 100 times richer than the poorest. In this seminar, I tried to answer this question: Why have some countries grown so quickly over the long run while others have stagnated? To answer this, I focused on understanding and interpreting the effects of women in leadership positions on GDP through economics.
This document summarizes a study examining the characteristics and effects of political influence on firms in developing countries. The study finds that politically influential firms receive economic benefits like lower taxes and easier access to credit. However, these firms also provide benefits to politicians through maintaining higher employment levels and paying more taxes. While influential firms earn higher profits, they are less productive than non-influential firms and are less likely to invest or innovate due to restrictions on firing workers and unpredictable taxes imposed on them. Overall, the study suggests that political influence undermines firm performance and can prolong economic underdevelopment.
This document discusses the concept of globalization from several perspectives. It begins by defining globalization as the process of international integration arising from the interchange of ideas, products, and culture facilitated by advances in transportation and communication technology. While some trace globalization's origins far back in history, others see it emerging more strongly in modern times with growing economic and cultural interconnectedness in the late 19th and early 20th centuries. The document then examines several aspects and impacts of globalization identified by the IMF as well as linked environmental challenges. It provides definitions and discussions of globalization from scholars and authors to capture its key elements of extensity, intensity, velocity, and impact on business, work, economics, culture and the environment on a global
Viewing the Chinese economy as a speeding car, there are three types of development that could crash the car: (1) a hardware failure, which is the breakdown of an economic mechanism (analogous to the collapse of the chassis of the car), e.g. a banking crisis; (2) a software failure, which is a flaw in governance that creates social disorders (analogous to a fight among the people inside the car), e.g. the state not being able to meet the rising social expectations about its performance because many of the key regulatory institutions are absent or ineffective; and (3) a power supply failure, which is the loss of economic viability (analogous to the car running out of gas or having its ignition key pulled out) e.g. an environmental collapse or an export collapse.
The fact that China has recently declared that its most important task is to build a Harmonious Society (described as a democratic society under the rule of law and living in harmony with nature) suggests that improvements in governance and protection of the environment are among the most serious challenges to achieving sustainable development. The greatest inadequacy of the Harmonious Society vision is the absence of an objective to build a harmonious world because a harmonious society cannot endure in China unless there is also a harmonious world, and vice-versa. The large amount of structural adjustments in the developed countries generated by rapid globalization and technological innovations has made the international atmosphere ripe for trade protectionism; and environmental degradation has made conflict over the global environmental commons more likely. China's quest for a harmonious society requires it to help provide global public goods, particularly the strengthening of the multilateral free trade system, and the protection of the global environmental commons. Specifically, China should work actively for the success of the Doha Round and for an international research consortium to develop clean coal technology.
Authored by: Wing Thye Woo
Published in 2007
Inna Shkolnyk, Viktoriia Koilo
http://dx.doi.org/10.21511/imfi.15(1).2018.32
The relationship between external debt and economic growth: empirical evidence from Ukraine and other emerging economies
The article examines the relationship between external debt and economic growth in emerging economies for the period 2006-2016. The authors used different econometric tools, e.g., ADL model and correlation analysis. The regression results showed that the original values had no significant impact on the estimation of the parameters. Thus, there was made an assumption that emerging economies have a non-linear impact on macroeconomic parameters, including external debt that has a non-linear type of influence on economic growth. The authors established that high level of external debt, in conjunction with macroeconomic instability, impedes economic growth in such countries. The regression model also showed that there is a critical level of debt burden for emerging economies, where the marginal impact of external debt on economic growth becomes negative.
The results of the study highlighted the significance of the problem of effective public debt management strategy implementation in Ukraine. This issue is predetermined by the appropriate organizational support. The study recommends improving a public external debt management model. In this paper, the authors proposed a new structure with the participation of new element – independent agencies. The unified external debt management system should integrate all state institutions and executive power structures in this area.
Analysis of the impact of financial development on foreign direct investment ...Alexander Decker
This document discusses using data mining techniques to analyze the relationship between foreign direct investment (FDI) and financial development. It analyzes data from 78 countries from 1980 to 2009 using attribute analysis, association, and classification methods. The analysis finds that FDI is positively correlated with certain stock market and banking sector variables, indicating financial development in a country influences FDI. It ranks attributes like GDP, private credit, and stock market capitalization as having high correlations with FDI inflows and outflows. The development of a country's financial system is an important factor for FDI to positively impact economic growth.
Este documento describe diferentes herramientas web educativas y si son multiplataformas o sitios web. Explica brevemente Calameo, SlideShare, Wikispace, Prezi, Dropbox, Blogger, Onedrive, Google Drive, Edmodo, y SlideRocket, indicando para cada uno su definición, URL oficial, si es multiplataforma o sitio web, y por qué lo es.
Intervento di Alessandro Mattioli, Consulente per l'Immagine e la Comunicazione di Barbieri & Associati Dottori Commercialisti presso la Fondazione Forense Bolognese - Bologna, 27/10/2014
This document provides a theoretical analysis of how corruption and business interests interact to influence institutional reforms. It develops a political-economic model where a government sets an optimal institutional level considering the costs of the policy on foreign direct investment and citizens. A corrupted lobby group representing dishonest civil servants makes political contributions to influence the government to adopt a lower institutional level that benefits illegal structures. The analysis finds that the optimal institutional level depends on the relative efficiency of legal versus illegal structures for paying fiscal costs.
Advanced EC seminar on decentralisation and local governance
European Commission EuropeAid
2-5 July 2012, Brussels
The seminar reviewed the country context and the evolving international development framework and considered how to manage the political dimensions of decentralisation. It also looked at using decentralisation as a trigger to foster better development outcomes and governance and what all this means for future EU engagement in decentralisation and local governance. Jean Bossuyt, ECDPM, was the lead facilitator of this meeting. Alisa Herrero, ECDPM, was also one of the experts facilitating this seminar.
Public service transformation in africa key note speechMwiza Helen
The document discusses the differences between the state and government. The state refers to the overall political community that exists independently of any particular government. It is a permanent institution defined by its territory, population, and sovereignty. In contrast, government is a temporary institution that can change and is made up of the specific people and institutions that administer public policy. While the state is permanent, governments rise and fall. The document also examines how the roles of government, the private sector, and non-state actors have become blurred in recent decades.
1) The document summarizes research on the role of human capital in different types of regions, including urban, rural, peripheral, and cross-border regions.
2) Two papers examined how human capital mobility impacts local employment in Danish municipalities, finding that in-migrants and in-commuters generally complement the local workforce except in some cases where they substitute medium-skilled locals.
3) A second paper analyzed the spatial mobility and early career outcomes of university graduates in Denmark, finding benefits to mobility for academic but not professional graduates.
4) The research also developed a model of "Cross-Border Institutional Thickness" to examine institutional cooperation and human capital creation in Danish-German border regions.
Our research is to discuss the influence of interstate economic relation on MNCs’ (MultiNational
Company) OFDI (outward foreign direct investment) location choice. Although there are many researches
about the effect of interstate bargaining tier on OFDI location choice, most of them focuses on interstate
bargaining power from political aspects.
The institutional reforms in many countries since
the 1990s were introduced to attract more inward foreign
direct investments (FDI). The findings of institutional theory
and its economic application within the concept of the new
institutional economics have confirmed its benefits as a
valuable framework in analyzing the FDI determinants and
for supporting the creation of the appropriate economic
policies. After evaluating the theoretical concepts of institutional
theory, new institutional economics and selected
empirical research on the role of institutions as FDI determinants,
we conclude by focusing on three research areas
and related improvements that deserve additional attention
from interested scholars. These are: introducing and generalizing
the use of governance indicators at the regional level,
better understanding the impact, and strengthening the
importance of informal institutional variables in empirical
models of FDI flows and emphasizing sectoral analysis of
FDI determinants.
Real estate, followed by infrastructure, dominate real asset investing, according to a new global study. Learn why in our new report sponsored by BlackRock. More information: http://bit.ly/AraBlk
China Goes Global: Practice, Theory and PolicyIlan Alon
The globalization of Chinese enterprises is already upon us and China is now one of the leading international investors. Alon summarizes the state of the art on the practice, theory and policy of the internationalization of Chinese enterprises. He examines extent of Chinese investment abroad, relevant theories of emerging markets multinationals and policy issues that arise with the increased investment from the Communist regime.
This document analyzes survey data from over 40 developing countries to understand determinants of radicalism, support for violence, and participation in anti-regime actions. It finds that individuals who feel politically and economically marginalized are more likely to harbor extremist views but less likely to join collective political movements. This potentially explains why marginalized groups are difficult to mobilize in nation-wide movements, despite their attitudes. It also finds that arenas for active political participation are more likely dominated by upper-middle income groups committed to preserving the status quo. Suppressing these forms of participation may push these groups towards more radical preferences. The findings suggest the poor may be caught in a cycle of increasing self-exclusion and marginalization.
Rethink the politics of development in Africa? how the political settlement s...Dr Lendy Spires
This document analyzes how the distribution of political power within ruling coalitions in Ghana shaped the allocation of resources to the education sector from 1993 to 2008. It finds that under both the NDC and NPP governments, regions with more powerful factions within the ruling coalition received more education spending per capita compared to need. A political settlements approach focusing on how power is distributed within ruling coalitions provides insights into how politics influences development outcomes in Africa.
Arrangements by which influential firms receive economic favors, has been documented in numerous case studies but rarely formalized or analyzed quantitatively. We offer a formal voting model in which political influence is modeled as a contract by which politicians deliver a more preferential business environment to favored firms who, in exchange, protect politicians from the political consequences of high unemployment. From this perspective, cronyism simultaneously lowers a firm’s fixed costs while raising its variable wage costs. Testing several of the implications of the model on firm-level data from 26 transition countries, we find that more influential firms face fewer administrative and regulatory obstacles and carry bloated payrolls, but they also invest and innovate less. These results do not change when using propensity-score matching to adjust for the fact that influence is not randomly assigned.
Xiaoou Zhu Publication Development FinanceXiao'ou Zhu
This document summarizes a research article that examines China's foreign assistance program through a case study of Chinese involvement in post-war Sri Lanka. It argues that China's foreign assistance has shifted from a top-down, state-directed model to one driven by increasingly autonomous Chinese state-owned enterprises. Through their activities in Sri Lanka, these SOEs now play a key role in identifying business opportunities, shaping foreign assistance policies, and bridging the gap between host countries and the Chinese state to fulfill their own commercial interests. However, this new paradigm led by SOEs is less able to address issues like debt sustainability and geopolitical tensions in recipient countries. The document proposes greater inclusion of the private sector and civil society in China's overseas
Innovation a modern model for estimating volume of money launderingAlexander Decker
This document summarizes research on estimating the volume of money laundering using a new mathematical model. It introduces previous methods for estimating money laundering that have limitations and errors. The study applies a combination of the Bhatta charya method and arithmetic methods based on Tikhonov's regularization strategy and inverse problem to introduce a new equation for assessing the quantity of dirty money. It aims to explain economic modeling and introduce an improved method without assumptions of other approaches.
Women Leading Growth: An Empirical Analysis on the Effects of Women in Leader...Avril Espinosa-Malpica
UBC Economics 490: Seminar In Applied Economics Research Essay
250 years ago the wealthiest country was at most four times richer than the poorest country. Today the richest country is almost 100 times richer than the poorest. In this seminar, I tried to answer this question: Why have some countries grown so quickly over the long run while others have stagnated? To answer this, I focused on understanding and interpreting the effects of women in leadership positions on GDP through economics.
This document summarizes a study examining the characteristics and effects of political influence on firms in developing countries. The study finds that politically influential firms receive economic benefits like lower taxes and easier access to credit. However, these firms also provide benefits to politicians through maintaining higher employment levels and paying more taxes. While influential firms earn higher profits, they are less productive than non-influential firms and are less likely to invest or innovate due to restrictions on firing workers and unpredictable taxes imposed on them. Overall, the study suggests that political influence undermines firm performance and can prolong economic underdevelopment.
This document discusses the concept of globalization from several perspectives. It begins by defining globalization as the process of international integration arising from the interchange of ideas, products, and culture facilitated by advances in transportation and communication technology. While some trace globalization's origins far back in history, others see it emerging more strongly in modern times with growing economic and cultural interconnectedness in the late 19th and early 20th centuries. The document then examines several aspects and impacts of globalization identified by the IMF as well as linked environmental challenges. It provides definitions and discussions of globalization from scholars and authors to capture its key elements of extensity, intensity, velocity, and impact on business, work, economics, culture and the environment on a global
Viewing the Chinese economy as a speeding car, there are three types of development that could crash the car: (1) a hardware failure, which is the breakdown of an economic mechanism (analogous to the collapse of the chassis of the car), e.g. a banking crisis; (2) a software failure, which is a flaw in governance that creates social disorders (analogous to a fight among the people inside the car), e.g. the state not being able to meet the rising social expectations about its performance because many of the key regulatory institutions are absent or ineffective; and (3) a power supply failure, which is the loss of economic viability (analogous to the car running out of gas or having its ignition key pulled out) e.g. an environmental collapse or an export collapse.
The fact that China has recently declared that its most important task is to build a Harmonious Society (described as a democratic society under the rule of law and living in harmony with nature) suggests that improvements in governance and protection of the environment are among the most serious challenges to achieving sustainable development. The greatest inadequacy of the Harmonious Society vision is the absence of an objective to build a harmonious world because a harmonious society cannot endure in China unless there is also a harmonious world, and vice-versa. The large amount of structural adjustments in the developed countries generated by rapid globalization and technological innovations has made the international atmosphere ripe for trade protectionism; and environmental degradation has made conflict over the global environmental commons more likely. China's quest for a harmonious society requires it to help provide global public goods, particularly the strengthening of the multilateral free trade system, and the protection of the global environmental commons. Specifically, China should work actively for the success of the Doha Round and for an international research consortium to develop clean coal technology.
Authored by: Wing Thye Woo
Published in 2007
Inna Shkolnyk, Viktoriia Koilo
http://dx.doi.org/10.21511/imfi.15(1).2018.32
The relationship between external debt and economic growth: empirical evidence from Ukraine and other emerging economies
The article examines the relationship between external debt and economic growth in emerging economies for the period 2006-2016. The authors used different econometric tools, e.g., ADL model and correlation analysis. The regression results showed that the original values had no significant impact on the estimation of the parameters. Thus, there was made an assumption that emerging economies have a non-linear impact on macroeconomic parameters, including external debt that has a non-linear type of influence on economic growth. The authors established that high level of external debt, in conjunction with macroeconomic instability, impedes economic growth in such countries. The regression model also showed that there is a critical level of debt burden for emerging economies, where the marginal impact of external debt on economic growth becomes negative.
The results of the study highlighted the significance of the problem of effective public debt management strategy implementation in Ukraine. This issue is predetermined by the appropriate organizational support. The study recommends improving a public external debt management model. In this paper, the authors proposed a new structure with the participation of new element – independent agencies. The unified external debt management system should integrate all state institutions and executive power structures in this area.
Analysis of the impact of financial development on foreign direct investment ...Alexander Decker
This document discusses using data mining techniques to analyze the relationship between foreign direct investment (FDI) and financial development. It analyzes data from 78 countries from 1980 to 2009 using attribute analysis, association, and classification methods. The analysis finds that FDI is positively correlated with certain stock market and banking sector variables, indicating financial development in a country influences FDI. It ranks attributes like GDP, private credit, and stock market capitalization as having high correlations with FDI inflows and outflows. The development of a country's financial system is an important factor for FDI to positively impact economic growth.
Este documento describe diferentes herramientas web educativas y si son multiplataformas o sitios web. Explica brevemente Calameo, SlideShare, Wikispace, Prezi, Dropbox, Blogger, Onedrive, Google Drive, Edmodo, y SlideRocket, indicando para cada uno su definición, URL oficial, si es multiplataforma o sitio web, y por qué lo es.
Intervento di Alessandro Mattioli, Consulente per l'Immagine e la Comunicazione di Barbieri & Associati Dottori Commercialisti presso la Fondazione Forense Bolognese - Bologna, 27/10/2014
Geo.2 historia inst. superior de formación docente y técnica nº39 america latinageo39 geo39
El documento presenta un trabajo práctico sobre las características geográficas de América Latina realizado por un grupo de estudiantes. Incluye 19 fotografías de diferentes formaciones geográficas latinoamericanas como volcanes, montañas, desiertos, llanuras y cascadas ubicadas en países como México, Cuba, El Salvador, Venezuela, Brasil, Colombia, Ecuador, Chile y Paraguay.
Think Like an Editor: Turn Good Design Blogs, Articles, and Books Great by Ro...GardenBloggersConference
Robin Catalano will present on how to think like an editor to improve blogs, articles, and books. The presentation will cover what professional editors look for in manuscripts, the best and worst times for self-editing, identifying strengths and weaknesses, and knowing when to stop editing. Attendees will learn editing tricks and how to develop a distinctive writing voice.
Este documento habla sobre la telefonía móvil. Explica que la telefonía móvil permite hacer y recibir llamadas desde cualquier lugar dentro del área de cobertura. Luego describe las características de los celulares de baja, media y alta gama, así como de los smartphones. También explica las cuatro generaciones de celulares, desde los analógicos de primera generación hasta los de cuarta generación que permitirán recibir señales de televisión HD.
This document provides an analysis of governance indicators. It begins with an abstract that discusses the increased interest in countries' governance from investors, aid donors, and researchers. Section 1 introduces the topic and explains that the paper will review commonly used governance indicators and discuss their use and usefulness. Section 2 discusses the need for governance indicators and defines governance. It argues that governance is important for economic performance and policy effectiveness. The document concludes that while governance indicators are a useful tool, they should be supplemented with other information sources.
This study empirically investigates the impact of institutional variables on financial development in 29 African
countries. The Pooled Mean Group estimation method was applied to annual data covering the 2000 to 2014 period.
The results show that in the short run, economic freedom has a positive impact on financial development. In the long
term, democracy has a negatve impact on financial development while corruption and economic freedom positively
affect financial development. This suggests that promoting economic freedom is conducive to financial
development. However, in African countries, democracy is not in favour of financial development.
This document introduces a new Global Financial Development Database that benchmarks the financial systems of 205 economies from 1960 to 2010. The database measures four characteristics of financial institutions and markets: (1) size (financial depth), (2) access, (3) efficiency, and (4) stability. It uses these measures to characterize and compare financial systems across countries and over time, as well as examine the relationship between financial systems and policies. The analysis presented in the database and document provide an empirical framework for describing the multi-dimensional nature of financial systems around the world.
This document provides an overview of the Human Capital Index, which measures human capital development around the world. The index covers four pillars: health and wellness, education, workforce and employment, and an enabling environment. It uses 51 indicators to measure these pillars, capturing factors like education levels, health, employment rates, and the context in which human capital operates. The document explains the methodology and indicators used in the index and aims to provide a framework for benchmarking and discussing human capital across countries. It also introduces the country profiles included in Part 2 which provide more detailed analysis of human capital for each country.
This document introduces the Human Capital Index, which measures a country's human capital development based on four pillars: education, health, employment, and the enabling environment. The index takes a holistic and long-term view of human capital, incorporating indicators related to early childhood development, working age population, and older population. Country profiles are also included to provide contextual factors and allow for comparisons across different regions and income levels. The goal is to better understand and address challenges to developing a healthy, educated, and productive workforce.
State business and economic performance in ghanaDr Lendy Spires
This document analyzes state-business relations (SBRs) in Ghana and their impact on economic performance. It finds that effective SBRs, characterized by formal and regular engagement between government and businesses, correlate with improved firm productivity and economic growth. A quantitative analysis of over 250 Ghanaian firms from 1991-2002 showed that social networks and connections between firms and government increased productivity. Interviews with state agencies and businesses confirmed that SBRs have shifted from informal to more formal and synergistic relations since 1992, with positive effects like expedited import clearance. Overall, the study concludes that an enabling environment and effective SBRs are important for private sector development, investment, and poverty reduction in Ghana.
Research is important for progress and developing logical thinking. It plays a key role in government and business by helping to solve operational problems and inform economic policy. Government policies rely on research to understand needs, costs, revenues and alternative policy options. Research facilitates decision making for policymakers and is needed to develop programs around economic conditions, industries, working conditions and more. It also helps governments collect ongoing statistical information about the economy to understand what is happening and changing. Overall, research serves governments in investigating economic structures, diagnosing current events and underlying forces, and making predictions about future developments.
The document analyzes the relationship between governance and economic growth in Africa. It finds that improving governance, as measured by a composite index constructed from World Bank indicators, has a significant positive impact on economic growth. Specifically, a 1% improvement in the governance index is estimated to increase real GDP by 1.7% based on data from 44 African countries from 2000 to 2015. Countries that improved their governance indicators the most, such as Rwanda, Angola, and Ethiopia, experienced stronger economic growth. Therefore, strengthening governance is presented as an effective way for African countries to boost economic growth with relatively low financial costs.
This document provides background information on a knowledge platform focusing on strategic actors for the implementation of inclusive development policies. It discusses three key points:
1) The importance of focusing on inclusive development, rather than just inclusive growth, and addressing challenges in implementing inclusive policies.
2) The need to understand how to influence "unwilling" actors and overcome resistance to reform from political and commercial elites.
3) The value of exploring the role of strategic actors across different sectors that can drive implementation of inclusive development policies.
The document discusses the importance of considering context in corporate social responsibility (CSR) research, particularly for developing countries. It focuses on three key contextual issues that influence CSR and CSR reporting: political ideology and state control in China, cultural understandings in the Middle East, and the impact of historical economic context in Sri Lanka. The document argues that CSR research often fails to fully investigate these important contextual factors and instead relies on theories developed from Western contexts, which may not apply to developing countries with very different socio-political environments.
Governance for economic and social development in Africa: A special reference...iosrjce
When we say Africa we say poverty, disease and war. We just have the wrong vision about it. Today,
this big forest continent has changed. We don't have the old disastrous rates about war, floods and corruption.
We have improvement in many sectors starting agriculture, natural resources and higher studies.
Africa’s economic prospects have never been brighter. But realizing this potential depends on governments
understanding the private sector and how to support it. This is an extremely important part of the work that the
Africa Governance Initiative does.
This is big evidence about Africa progress. In fact, most African countries have marked recent years, a
significant turning point. Thanks to the role that governance plays in achieving economic and social
performance. This has been achieved through the establishment of effective and accountable institutions,
whether political, economic or social, plays a key role in achieving social and economic performance especially
in the countries of the continent.
This paper will focus on the study of the relevance or otherwise of the implementation of the governance model
in terms of social and economic performance in Africa. This argument is supported by a governance assessment
carried out according to the Ibrahim Index of African Governance.
This document summarizes a discussion paper on the relationship between sustained economic growth and financial systems. It begins by noting that traditional growth theory does not consider the role of financing, but that financial systems play important roles in channeling savings to investment, allowing risk sharing, and producing information to allocate capital. It then reviews literature on how financial systems can promote growth through producing information, allocating capital to high-return projects, and facilitating risk sharing. The paper discusses empirical evidence and challenges in analyzing the complex relationships between financial development, structure, and economic growth.
This document summarizes previous research on privatization in developing countries. It discusses the economic theories and benefits of privatization, including reducing the size of government, shifting focus to economic goals, and empowering communities. Previous studies have found that privatization generally leads to increased productivity and positive economic effects, though the impact depends on factors like competition, governance, and regulation. The document also reviews literature on Jordan's privatization program and its mixed results in achieving economic prosperity goals.
Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
The study examined the relationship between financial deepening and economic growth for the
period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
Measuring the Dynamics of Financial Deepening and Economic Growth in Nigeria,...iosrjce
The study examined the relationship between financial deepening and economic growth for the
period 1981 to 2013 using empirical evidence from Nigeria. The Engel-Granger two-step cointegration
procedures and Error Correction Model (ECM) were used as the method of estimation. The analyses of
residuals of the OLS regression showed evidence in favour of cointegration between financial deepening and
economic growth. Similarly, estimates from the error correction model provide evidence to show that financial
deepening indicators and GDP series converge to a long-run equilibrium at a reasonably fast rate. The result
points to the fact that the deepening of the financial system can engineer the Nigerian economy to greater
growth.
Bringing Prosperity to Life. The Legatum Prosperity Index™ 2016 Methodology R...eraser Juan José Calderón
Bringing Prosperity to Life. The Legatum Prosperity Index™ 2016
Methodology Report. Brief Introduction to the
Prosperity Index
The Legatum Institute is an international thinktank
and educational charity that focuses on
measuring, understanding, and explaining the
journey from poverty to prosperity for individuals,
communities, and nations. The Institute sees
prosperity as human flourishing: the notion that
individuals with the opportunity to discover, fulfil,
and share their potential become the best they
can be. The Institute recognises that this is best
driven through the mutually reinforcing relationships
between wellbeing and wealth creation.
The Legatum Prosperity Index is a reflection of
this view. It is a framework that assesses countries
on the promotion of their citizens’ flourishing, reflecting
both wealth and wellbeing across nine
pillars, or sub-indices, of prosperity. This makes
the Index, covering 149 countries, a unique global
benchmarking tool. It captures the richness of a
truly prosperous life and in so doing seeks to redefine
the way we measure national success, changing
the conversation from what we are getting to
who we are becoming. Thus it is an authoritative
measure of human progress, offering a unique insight
into how prosperity is forming and changing
across the world.
This document discusses the relationship between good governance and economic growth, particularly regarding the governance of natural resources. It argues that good governance, which includes accountability, transparency and rule of law, contributes positively to economic performance and growth. Poor governance in developing resource-rich countries has led to issues like poverty, weak economies and instability. The governance of natural resources is challenging and countries must address factors like politics, history and culture to effectively pursue good governance. Improving governance is key to fostering sustainable economic growth and development.
The Relationship between Financial Structure and GDP.Stefano Valeri
This document analyzes the relationship between different financial structures and GDP levels across countries. It identifies three main types of financial systems: bank-based, market-based, and government-based. These systems are characterized by five factors: solvency, profitability, market efficiency, foreign presence, and core revenue/cost structure. The document uses factor analysis to develop indexes for these factors. It then performs cluster analysis to group countries into the three financial system types. Finally, it uses regression analysis to test if each system type is related to GDP levels, finding that only market-oriented systems are strongly related to economic development as measured by GDP.
The document presents a theoretical political-economic model that analyzes how corruption and foreign direct investment (FDI) interact to determine an optimal institutional policy level in a developing country. There are two types of people - honest people who work in the private sector, and dishonest people who work for the corrupt civil service. The model considers the costs to firms of paying taxes through both legal and illegal structures, and how the institutional policy level affects these costs. The optimal policy level depends on the relative efficiency of the legal versus illegal structures, as well as the degree of corruption in the political process and the size of political contributions from dishonest lobby groups.
The Importance of State-Business Relations in Advancing Developmental Goals i...Abel Diale
This document discusses state-business relations in South Africa and the potential role of corporate social responsibility (CSR) in advancing development goals. It provides background on the contested role of the state in the economy and tensions between state and business. While globalization and neo-liberal reforms reduced the state's role, CSR could help business organizations position themselves as socially responsible and assist the state's development aims by addressing social needs. The document examines debates around CSR and analyzes past state-business relations in South Africa to determine if CSR could enhance cooperation between the two.
Similar to CASE Network Studies and Analyses 337 - The Political Economy of Growth and Governance (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
This document provides a comparative analysis of the rule of law and its impact on economic development in Poland and Germany. It finds that while both countries have strong rule of law frameworks de jure, there are significant differences de facto, with Polish firms showing less trust in the state and courts compared to German firms. Empirical analysis suggests higher levels of investment and economic development in Germany can be partially attributed to firms' greater recognition of the rule of law's ability to reduce transaction costs. Erosion of the rule of law in Poland since 2015 has likely negatively impacted investment and capital accumulation compared to Germany.
The report analyzes the VAT gap in the EU-28 member states in 2018. It finds that the total VAT gap in the EU was an estimated €137 billion, representing 12.2% of the total VAT liability. This is an increase compared to 2017, when the gap was €117 billion or 11.2% of the total liability. The report examines VAT revenue, total VAT liability, and VAT gap estimates for each member state from 2014 to 2018. It also conducts econometric analysis to identify factors influencing VAT gap levels across countries.
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
The document summarizes the evolution of the Belarusian public sector from a command economy to state capitalism. It discusses how the Belarusian economic model has changed over time, moving from a quasi-Soviet system based on state property and central planning, to a more flexible hybrid model where the public sector still dominates the economy. The paper analyzes the role and characteristics of the state sector in Belarus and how it has developed since independence. It considers various theoretical perspectives for understanding statist economies like Belarus, but concludes that a new multidisciplinary approach is needed to fully capture the dual nature of the Belarusian economic system.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
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CASE Network Studies and Analyses 337 - The Political Economy of Growth and Governance
1. S t u d i a i A n a l i z y
S t u d i e s & A n a l y s e s
C e n t r um A n a l i z
S p o l e c z n o – E k o n omi c z n y c h
C e n t e r f o r S o c i a l
a n d E c o n omi c R e s e a r c h
3 3 7
Paul Hare
The Political Economy of Growth and Governance
Warsaw, February 2007
3. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
3
Contents
Abstract ............................................................................................................................... 5
Introduction ......................................................................................................................... 6
I. The Evidence .................................................................................................................... 9
II. The State.........................................................................................................................14
III. Internal Conditions for Growth.....................................................................................18
IV. The External Environment............................................................................................19
V. Assembling a Model ......................................................................................................25
VI. Conclusions on Governance........................................................................................33
References..........................................................................................................................36
4. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
4
Paul Hare
The author is Professor of Economics at Heriot-Watt University, Edinburgh. He founded the
Centre for Economic Reform and Transformation (CERT), research centre on the transition
economies, in 1990. This Centre undertook many research projects on privatisation,
industrial restructuring, and related topics to do with the transition economies, as well as a
variety of consultancy projects for the World Bank, IMF and other international
organisations. Professor Hare is currently working on institutions and development in the
framework of a five-year research programme on 'Improving Institutions for Pro-Poor
Growth', funded by the UK's Department for International Development and based at the
University of Manchester.
5. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
5
Abstract
There are diverse ideas about governance around the world, and this paper studies
them through the following questions: (a) what does the available evidence tell us about the
political and institutional requirements for sustained economic growth? (b) What do we need
from the state to secure growth? (c) How do a country’s internal characteristics support or
impede its growth? (d) How does the external environment of a country influence its
economic growth prospects? These elements are then put together into a model of growth,
from which we derive conclusions about governance arrangements. Thus the paper outlines
a simple framework within which to think about the political economy of growth that can be
summed up in five points: good government, with secure political conditions; credible
macroeconomic stability; savings and investment high enough to sustain adequate growth;
openness to the world economy; and the discipline of external engagement. It then argues
that the growth model needs to be underpinned by suitable governance arrangements, and
suggests that good governance has two main elements, each quite complex in practice,
namely: protection of property rights, and accountability of government
6. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
“I would suggest that the rate at which countries grow is substantially
determined by three things: their ability to integrate with the global
economy through trade and investment; their capacity to maintain
sustainable government finances and sound money; and their ability to
put in place an institutional environment in which contracts can be
enforced and property rights can be established. I would challenge
anyone to identify a country that has done all three of these things and
has not grown at a substantial rate.” Larry Summers (2003)
6
Introduction
What are the political requirements for a country to achieve successful economic
growth? These are often thought of in terms of democracy and an associated liberal
economic system in which most goods, services and resources are allocated through a
system of interacting markets. However, while not entirely wrong, this is much too simple a
view of the world, since democracy per se is neither necessary nor sufficient for economic
growth and the term ‘liberal economic system’ is much too vague to be helpful. We all think
we know what it means, but when pushed to be specific, I imagine we would each want to
highlight different aspects of the system as its key or essential features.
Moreover, the sorts of answer we would offer would most likely depend on the part of
the world on which our attention was most strongly focussed. To illustrate this, let me give
three examples. First, Commission (2001) is considering governance within the EU, so it
naturally takes for granted that functioning states are in place, along with the rule of law and
much of the regulatory framework we take for granted in developed, market-type economies.
This is why the report is able to dwell on what can only be considered relatively high-level
and fine-tuning aspects of governance, to do with transparency, information flows, improving
accountability, and making policies more effective and coherent. One can hardly disagree
with the attention given to such matters, but they don’t have much resonance or relevance
for other parts of the world.
Second, and in marked contrast to this, Keefer (2006) is concerned with governance
in China and India. Neither country is considered to have better than average values for key
governance indicators, though both took off economically in the wake of some significant
improvements, and both have better governance than do many other low-income countries.
7. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
Also, the sheer size of each country proved helpful since it facilitated competition between
regions, together with experimentation and learning - thus Keefer argues that a small state
with the same quality of governance would have grown far more slowly than did China and,
more recently, India. The key was to reach a point where the government in each country
could make credible commitments to entrepreneurs that they would be permitted to enjoy the
fruits of their investments (i.e. without fear of expropriation). Such a fundamental issue
doesn’t even rate a passing mention in Commission (2001), of course.
Last, CfA (2006) raises concerns about economic and political governance in Africa.
This report sees governance in even more basic terms, as the question whether there is an
effective state in place, or not. While emphasising that state-building per se is largely for the
African countries themselves, the report does also suggest ways in which the developed
countries can help the process , notably by supporting capacity-building and accountability.
In the African context, the latter means a lot more than it might in the EU, since it includes
measures to do with budgetary transparency to make it harder for elites to plunder natural
resource revenues; and measures to tackle corruption and assist the repatriation of stolen
state assets.
Governance is also increasingly discussed at the level of individual enterprises in
developing countries, where it has a part to play in facilitating the financing of new
investments, especially when financial markets themselves are also evolving and
strengthening in the countries concerned. Thus Oman (2003) presents four detailed case
studies of Brazil, Chile, India and South Africa to illustrate the importance of good
governance at the corporate level. These studies distinguish between relationship-based
and rules-based systems of corporate governance, arguing that a transition to the latter is
critical for long-run economic growth based on productivity improvements.
Given such diverse ideas about governance, my aim in this paper is to stand back
somewhat from the specific economic system we are most familiar with in order to examine
some broader questions, namely:
• What does the available evidence tell us about the political and institutional
requirements for sustained economic growth? (Section I)
• What do we need from the state to secure growth? (Section II)
• How do a country’s internal characteristics support or impede its growth? (Section III)
• How does the external environment of a country influence its economic growth
7
prospects? (Section IV)
8. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
• How can we put together the various elements to formulate a useful model of growth
processes (Section V), and hence draw conclusions for the most appropriate
governance arrangements in different countries, including both the political economy
and the business/enterprise aspects (Section VI)?
Through addressing these questions, I shall arrive at some findings about
governance around the world - both at the political and at the business levels - that will be
highly relevant to the overall theme of this conference. These findings fall into two main
groups. The first is a set of more general observations about important aspects of
governance applicable to any country. The second group will adapt and specialise these
general observations to bring out some particularly interesting findings applicable in different
ways to the diverse countries of the Eurasian land mass. By the end, I hope that we shall
achieve both a better understanding of the growth processes and experiences that can be
observed across Eurasia in recent decades, and learn from these to help design better
policies for those countries still striving to achieve more rapid and sustainable economic
growth.
The paper outlines a simple framework within which to think about the political
economy of growth that can be summed up in five points: good government, with secure
political conditions; credible macroeconomic stability; savings and investment high enough to
sustain adequate growth; openness to the world economy; and the discipline of external
engagement.
It then argues that the growth model needs to be underpinned by suitable governance
arrangements, and suggests that good governance has two main elements, each quite
complex in practice, namely: protection of property rights, and accountability of government.
8
9. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
9
I. The Evidence
To explain why some countries grow and become richer, while others languish in
poverty, is one of the great challenges of economics. Not surprisingly, many studies have
been done to identify the conditions that appear to be most conducive to sustained growth,
though much is still not fully understood in this extensive literature, and much remains
controversial.
Setting out from the simplest possible growth model leads to the idea that economic
growth ought to depend principally on the growth of factor inputs (notably capital and labour,
possibly also land; and the inputs may also be quality-adjusted in an appropriate way),
together with growth in overall productivity. The latter term tends to appear as a ‘catch all’
term that picks up any elements not covered by the growth of factor inputs, and so it is often
decomposed further into a variety of sub-components. This is what results in much of the
diversity in the associated empirical literature on the question of growth.
The initial focus on factor inputs directs attention towards investment, which
increases the capital stock, as well as towards diverse education and training activities that
boost the effective labour force by enhancing labour force quality. From reviewing growth
experience in many countries, it is clear that moderate to high rates of investment, usually at
least 20% of a country’s GDP, have to be considered a necessary condition for sustained
growth, most of this investment being funded from domestic savings. It is very rare for FDI,
for instance, to contribute more than a fairly modest fraction of a country’s total investment
outlays. A high rate of investment, however, is definitely not sufficient to ensure rapid
growth, since the investment actually undertaken can turn out to be extremely inefficient, as
was the case in most of the former communist countries in at least the last decade of
communist rule. Hence it is critical to have in place adequate institutions to ensure that the
selection processes determining which investment projects are implemented and which
rejected reward productive projects - at least on average, since some mistakes are bound to
occur - and generally penalise bad ones. Among other things, this means that investment
projects should not be selected as a political favour to some interest group, or as an element
in state patronage.
As regards labour force developments, countries mostly fall into two principal groups.
In countries where a large fraction of the workforce is still employed in low-productivity
agriculture, or in out-dated, inefficient industry, much growth can be achieved by the
10. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
movement of workers out of these sectors into faster growing, higher productivity sectors
such as more sophisticated manufacturing and the services sectors. Much of the workforce
might still be poorly educated, and lack modern skills, but shifting workers into higher
productivity sectors boosts output and economic growth. In time, this approach reaches its
limits, when there are no more low- productivity sectors from which workers can be drawn.
In countries like this, our second group, growth can only be sustained through continuous
improvements in productivity brought about through constant innovation and modernisation
of production, and by improving educational standards to boost labour-force quality. The
innovation aspect of this analysis was strongly emphasised in Parente and Prescott (2002),
who concluded that support for and receptiveness to innovation were fundamental for
sustained growth nowadays. Ireland is a country that has adopted this approach for over two
decades now with notable success, its relative income within the EU rising very substantially
since 1980 or so.
So far, of course, this discussion has only dealt with the supply side of economic
growth, but no country can achieve and sustain growth unless there is also a growing
demand for the resulting output. This demand can, in principle, stem from any of the main
components of aggregate demand that we normally distinguish in the national accounts,
namely personal consumption, public consumption, investment and net exports. We now
comment on each in turn.
As countries grow, we normally expect real wages to rise, living standards to improve,
so increases in personal consumption are very likely to contribute to the rising demand that
keeps growth going. Indeed it is quite hard to understand what growth is for, if not to
improve the living standards of the population. Consequently, there is not much to say about
this component, except that it clearly cannot contribute much to the expansion of demand if a
country chooses to hold down wages quite strongly. As regards investment (which
comprises both investment in fixed capital, and stock building), while its share in GDP is
rising to a level appropriate for sustaining moderate to rapid growth, its growth can provide
part of the required expansion in total demand. But once the share of investment has risen
to its desired level, it will contribute only in proportion to that share.
This leaves the two most interesting components of demand, namely public
consumption and net exports. On the former, total government spending consists of public
consumption (government demand for goods and services) plus transfer payments such as
social security spending (unemployment pay, income support, publicly provided pensions,
and the like). Transfer payments essentially redistribute incomes within the private sector,
and to that extent might contribute a little to aggregate demand (by shifting income from
10
11. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
those with a low marginal propensity to consume to those with a much higher one), but they
require taxation to finance them, with its associated deadweight losses. Likewise, funding
the government’s demand for goods and services - which means defence spending, outlays
on publicly funded health and education services, public administration, and so on - also
requires taxation unless the government is willing to rely heavily on deficit spending and
monetary emissions. While such a tactic is commonly observed, it is well known to be highly
undesirable given the general desideratum to maintain sound macroeconomic conditions as
a background condition for growth.
There is considerable evidence that higher government spending as a fraction of
GDP, typically associated with higher taxes, is harmful for economic growth. Thus Barro
(1991) found that across a large sample of countries, cutting the share of government
spending in GDP (where spending here means both government consumption plus transfer
payments) by 10 percentage points would raise the average growth rate of per capita GDP
by about 1.2% per annum, a substantial gain. In the rich countries of Western Europe, the
combination of high government spending (with the associated high tax rates) and slow
growth might not be too bad since living standards are already high, but for poorer countries
wishing to catch up it would be an economic disaster. Hence it is rather reassuring to learn
from Åslund (2006) that the CIS countries, mostly growing rapidly since the late 1990s
financial crisis that hit the region, have opted for quite low shares of government spending in
GDP, around 25% or so, in contrast to the much higher shares adopted by most of the
countries of Central and Eastern Europe (typically around 45% of GDP). Åslund (2006) also
makes the interesting point that in countries with relatively weak, not very capable, and often
corrupt states, it is also helpful for growth to keep government spending down. To put it
another way, bad government had better be small government.
Now consider foreign trade, the role of exports and imports in supporting growth.
Sometimes, when countries liberalise their trade as part of some ‘reform package’, they find
that imports rise rapidly while exports languish, resulting in trade deficits and concerns about
the credibility of the original liberalisation. Moreover, if net exports (exports less imports) are
becoming increasingly negative, far from promoting and supporting overall economic growth,
they slow it down. Nevertheless, most of the countries that have grown rapidly in the past
few decades have done so on the basis of an increasingly strong engagement with the world
economy, with exports growing much faster than GDP as a whole, the share of exports in
GDP therefore rising quite sharply over a decade or so. From this perspective, the ‘trick’, if I
may express it that way, is for countries to find goods and services that they can export
11
12. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
competitively onto the world market in increasing volumes. Countries with reserves of oil and
gas, or plentiful supplies of other important minerals and raw materials (such as copper,
timber), have a good starting point, though their success is also subject to the vagaries of
commodity market price fluctuations. Elsewhere, we can at least see ex post what has
proved to be successful in given countries: an increasingly wide range of manufactured
goods in China, software and other business-related services in India, electronic products
from Taiwan, and so on. The trouble is, few of us could have predicted ex ante exactly what
would be successful in which country. This unfortunate fact makes it quite hard to offer
concrete advice to new countries seeking to embark on export-led growth. In practice,
countries have to try out a variety of different products in the world market and only then will
they discover what will work for them. Picking winners is rarely a good strategy.
However, we do know that deliberate disengagement from the world economy is a
seriously bad policy. This was undoubtedly a factor in the poor performance of the former
socialist countries from the 1970s onwards, for instance, their share of world trade declining
steadily over the period. The centralised planning system paid little attention to comparative
advantage, and treated trade as a minor extension of the domestic economic balances. A
similar disengagement was also a factor in China’s relatively weak economic performance
before the internal reforms and economic opening that started in the early 1980s (soon after
successful agricultural reforms in the late 1970s). More recently, Broadman (2006) has
argued that, based on their current policies and practices, the former socialist countries fall
into two groups as regards their engagement with the world economy. Thus the countries of
Central and Eastern Europe and the Baltics are viewed as being fully engaged, encouraging
FDI and extensive modernisation to shift their exports towards products requiring more
sophisticated technology and yielding higher value added, while much of the CIS is tending
to be more inward looking, trading with each other on the basis of older technology, more
out-dated products, and not engaging so much with the wider world economy. For the
moment, the CIS approach cannot be regarded as too dreadful, since the region, as we
noted above, is growing very strongly. But Broadman (2006) does question whether current
growth will prove sustainable without more open trade policies. The countries of South
Eastern Europe are tending towards the CIS approach to trade policy, inward looking and not
very supportive of exports, tending to protect established firms long after their ‘sell-by date’.
Broadman suggests, correctly I think, that such small countries can only grow and do well by
adopting strongly export-oriented policies, and hence aligning themselves - in terms of trade
policy - far more with the rest of Central and Eastern Europe. It remains to be seen whether
they will do so.
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13. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
Much of sub-Saharan Africa is poorly involved in the world economy, again with
declining shares of world trade since 1960. This has resulted from a complex mix of poorly
designed policies and weak institutions, and effective remedies are not easy to design and
implement. What is quite unmistakable, though, is the outcome of generally lagging
economic performance, with only the last few years looking a little brighter.
Considering wider issues for a moment, Dixit (2005) reviews much of the recent
literature on what he terms ‘recipes’ for successful growth. Some of this is based on
approaches to growth that became fashionable for a time, such as the early postwar fashion
for development planning, and some approaches based on the experience of particular
countries deemed to be success stories. The trouble with these is that success rarely lasts,
and as soon as one particular development model comes to be advocated widely, the
countries on which it was based encounter problems. This reflects the sheer difficulty of fully
understanding development processes, and our failure to construct any generally valid
models. It also reflects, as Dixit points out, the widespread tendency to neglect the key
factor of ‘luck’, which plays a notable part in explaining the postwar economic success of
countries such as Japan, among others.
From the econometric work that Dixit surveys, it appears that various geographical
factors have been found to be significant. Thus being land-locked, and being a tropical
country, are factors sometimes found to be disadvantageous, though it remains unclear what
any so afflicted country is supposed to do about it (and in any event, the evidence is mixed)!
Institutional factors are perhaps more interesting, since institutions can be changed, albeit
not easily. However, the institutional features found to be most significant are such things as
openness to foreign trade - which we discussed above - and legal arrangements to protect
property rights and business contracts, sometimes summed up as an aspect of the ‘rule of
law’ (see Dam, 2006). These can take many concrete forms, and the econometric work
provides few clues that could assist us in advising countries on exactly what legal framework
they should adopt to support private sector business. In any case, this whole area, has
much to do with the nature of the state, to which we now turn.
13
14. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
14
II. The State
What do we expect from the state when thinking about its role in processes of
economic growth? First, and most fundamentally, we would expect the state to have a
monopoly over the means of enforcing order in the given country, so that it can protect
property rights and business contracts, levy taxation, and manage the public budget. This
entails state control over the armed forces, as well as the police and other security forces. It
also implies that the state is not faced with competing warlords or militias claiming to control
certain parts of the country. This requirement implies that a number of territories around the
world cannot be said to possess a fully functioning state. For instance, think of Afghanistan,
Lebanon, Somalia, Palestine, Iraq, and a few others.
Defining the key characteristic of the state in this way raises two questions: (a) What
is to stop the military from simply taking over full control of the state, e.g. by means of a
coup?1 (b) If the state is strong enough to protect property rights, what is to stop it from over-riding
these rights and expropriating private agents when they turn out to be successful in
their business ventures? The short answer is ‘not much’, but a longer answer would have to
refer to ‘history, experience and custom’. Establishing the ‘rule of law’, meaning both
effective civilian control over the military, and the protection of private property rights and
business contracts from state predation and general criminal activity, has proved extremely
difficult in the countries where it can be said to be firmly in place.
In the UK, for example, it took civil war (in the seventeenth century) and major
reforms of parliament for the latter to wrest control over the government’s budget from the
sovereign; and the judiciary has long cherished its independence from the executive. In the
US, the Constitution was deliberately designed with a separation of powers between the
executive (President and his cabinet), the legislature (the House of Representatives, and the
Senate), and the courts (especially the Supreme Court). The resulting system can appear
extremely cumbersome and messy, but the diverse checks and balances built into it provide
considerable protection - both from governmental interference and from wrongful behaviour
by other private agents - for private business entities.
In contrast, it is useful to remark on a major country such as Russia, where the
concept of ‘rule of law’ is not well understood, and is certainly not a routine part of the way in
which economic governance is thought about. It may well be the case that the Russian
15. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
military are reasonably well under civilian control. But it is harder to claim that the judiciary is
yet fully independent of political processes, though it is undoubtedly rather more so than it
was under the former communist system. And for business, both small and large, there
remains a significant gulf between the laws formally in place, and their implementation at
grass-roots level. In addition, it remains far too easy for the state itself to take action - which
to the outsider can appear little short of capricious - against particular businessmen who
might have fallen out of favour (e.g. Mikhail Khodorkovsky and the Yukos affair), or against
particular companies suddenly judged to be on the point of making too much money (e.g.
Shell’s activities on Sakhalin Island)2. Such actions seriously undermine the ‘rule of law’.
Meanwhile, other companies apparently behaving badly get away with it because they are
perceived to enjoy high-level political protection: e.g. Gazprom.
How, then can we make a state accountable, and limit its scope for arbitrary
intervention, either in relation to the government’s own actions or in relation to the private
sector? It is often claimed that democracy per se, in the limited sense of periodic voting to
choose both parliamentary representatives and the government, plays a major role in this
respect. It does play a role, certainly, but I would be cautious about placing too much
reliance upon it. For there are many states where voting takes place from time to time,
where it would be difficult to have much confidence in the electorate’s effectiveness in
constraining executive power.
More positively, however, there is evidence that where an elected parliament
effectively controls the government’s budget, scrutiny over public spending is greater, the
higher is the prevailing tax rate. Ironically, this suggests that a government that chooses not
to tax very much can do pretty much what it likes since it will face little scrutiny - so what
taxes it raises can be allocated quite corruptly, and can be misappropriated with little risk of
serious challenge. This is indeed the situation in more than a few countries.
It turns out, too, that possession of substantial natural resources, such as oil or gas,
is not only - on average - bad for growth3, but it also undermines any democratic scrutiny of
public spending since the government can spend a lot without having to raise much tax
revenue. This aspect is discussed in a recent paper, Collier and Hoeffler (2005), which
sketches a simple model in which high resource rents both weaken public scrutiny and
strengthen patronage politics; the paper finds considerable empirical evidence to support the
hypotheses it develops. Resource-rich countries where public scrutiny is weak, and where
much money is undoubtedly diverted into improper channels, would include Nigeria and
Saudi Arabia. However, resources are not always bad news, since Kazakhstan appears to
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be performing remarkably well (no doubt with some corruption, but not enough to slow down
the country’s rapid growth), and Norway has apparently managed its natural resources
exceptionally well, with almost no reported corruption.
Though not discussed in the Collier and Hoeffler paper, it seems to me that aid flows
to some countries could play the same role in the political process as resource rents, and
hence might have similar undesirable effects on the political aspects of economic
governance.
Not only should governments be accountable for their budgetary spending, but the
bureaucracy should be accountable for delivering and implementing the government policies
that have been approved. Making a civil service accountable in this way is not easy. In part
it is a matter of employing staff who are sufficiently well trained and sufficiently professional
to want to do a good job, perhaps guided by some form of civil service code of behaviour.
But if it were that simple, accountability in this sense would not be regarded as the
widespread problem that it is. Some of the problems that impede accountability include the
shortage of personnel with the right education and training; the lack of transparency at
various levels of government (e.g. how can anyone monitor funding of, say, secondary
schools if the education ministry fails to publish any information about its funding allocation?);
weak management of staff (why should teachers be diligent when no one even monitors and
reports on their attendance?); low wages that provide an incentive to seek out opportunities
for corruption; over-complex rules and regulations that provide these very opportunities; and
so on. The problems are usually easier to list than the solutions, unfortunately.
When government failure is pervasive, it is also important to ask what sorts of
economic transactions can still take place, effectively in the absence of a properly functioning
legal framework. One naturally thinks here of small-scale, local trading networks, in which
various forms of informal mechanisms can arise to police transactions (some interesting
models of such trading networks can be found in Dixit, 2004; Fafchamps, 2004; and Greif,
2006). However, even larger scale business can be conducted without having a proper legal
setting. Russian business in the early to mid-1990s is a case in point, where much anecdotal
evidence suggests that mafia-like organisations quickly emerged to ‘help’ settle business
disputes and enforce contracts. Such private sector solutions do, to an extent, work, but I
suspect they would not be widely considered especially desirable. Moreover, in such
conditions, the property rights that get protected are presumably those of the (relatively
wealthy and well connected) people who can pay for the necessary services.
There is a presumption in the above discussion that if property rights are to be
protected, or contracts honoured, then this must be ensured by the state exercising
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sovereignty over the territory concerned. But this need not always be the case. In the case
of failed states such as Somalia, some business can be pursued using the legal or banking
system of an agreed Middle Eastern country, and such deals are reportedly quite common.
And even for states that operate perfectly well, many international business deals specify, as
part of any contract, which country’s law shall be used in the event of a dispute - it need not
be the law of either contracting party, but can be the law of some agreed third country whose
legal system is widely respected.
In thinking about the state and its various roles in economic development, there are a
couple of final observations worth making here. First, there is the broad question of
causality, namely whether good institutions foster growth or the other way around. To what
extent does growth itself encourage the development of good institutions, including an
effective state? The evidence about this is decidedly mixed and ambiguous. However, I
would not personally advise a country to wait until its state was set up properly before it
sought to embark on some type of growth-promoting or enhancing strategy. In practice,
countries start from where they are, and we all have to live with that.
Second, there is the interesting tendency for clearly bad political institutions to persist.
This has been investigated theoretically by Acemoglu (2006), in a model with various groups
competing for power where it can be to the advantage of a group in power - in effect - to
impoverish other groups in order to retain power. A fairly extreme instance of this
phenomenon is probably Bolivia, the only country in South America whose per capita income
is almost the same now as it was back in 1950 (in other South American countries, real
incomes have at least doubled) (see Wiggins et al., 2006). The rich elite have been close
enough to political power to ensure that their property rights would be protected, without
them having to pay much attention to those of other groups. Now that a more radical leader,
Morales, has finally been elected, it is interesting to speculate whether he will seek to
fundamentally redistribute wealth by expropriating the rich - but thereby risking a military
coup that might reverse his reforms - or whether he will be clever enough to redistribute only
moderately, increasing the chance (in my view) of bringing about a more lasting change in
Bolivian politics. In general, very strong interest groups in a society can constrain change,
and hence lead to the persistence of inefficient political institutions. Often, our understanding
of the mechanisms of political and economic change is insufficient to enable us to do much
about such situations, except, perhaps, at a time of major economic crisis when even the
elite might be persuaded to accept some changes.
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III. Internal Conditions for Growth
Much of what we need to say here has at least been touched on above, so it will be
possible to be quite brief, and simply present a series of points to sum up the position. In
doing so, it is tempting to be as comprehensive as possible, but that runs the risk of forcing
us to conclude that sustained growth is either unlikely or impossible. Casual observation,
however, suffices to show how wrong such a conclusion would be. Hence we need to
distinguish between a limited number of internal conditions that should be considered
essential for growth, and a possibly longer list of conditions generally found to be helpful, that
we shall regard as desiderata.
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Essential conditions
• Political stability. Governments may be weak or strong, more or less democratic, but
private sector development is not helped by a strong perception of political instability,
with a high risk of coups, civil war, possible reversals of earlier major reforms, and the
like. Some interesting theoretical analysis of the conditions for political stability,
including the conditions for democratic consolidation, is presented in depth in
Acemoglu and Robinson (2006). Further analysis of the economics of government
failure and the principles of good government can be found in Besley (2006).
• Macroeconomic stability. It is hard to be precise here, but it is clear that countries
with inflation rates in excess of 100% almost never exhibit economic growth.
Similarly, countries usually find that government deficits exceeding 10% of GDP are
rarely sustainable for long, and the same can be said for large trade deficits except in
a few cases where countries are able to attract sustained FDI inflows to offset a trade
deficit. It is important not only that macroeconomic policies are conducive to stability
in this fairly loose sense, but that the macroeconomic stance should be credible to the
private sector.
• Investment of around 20% of GDP or higher. Except in short recovery periods (such
as following a war, or a deep recession), almost no country has sustained growth for
long without achieving high rates of savings and investment. As noted above, this
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investment does, of course, also need to be efficiently allocated to productive
projects.
This is all that I would consider essential, but there are many other conditions that I
would regard as desirable, and for which there is a good deal of empirical support from
experience around the world.
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Desiderata
• Steadily improving quality of labour force, as a result of improved education and
training.
• Improving quality of capital stock as a result of policies to encourage innovation,
technological upgrading, R&D, and the like.
• Appropriate microeconomic conditions need to be in place, namely: competition
policy, the legal framework for business, other elements of the business and
investment environments in general (see World Bank, 2006; World Bank, 2004).
• Appropriate institutional conditions are also desirable, including conditions for good
governance, both political and at company level.
IV. The External Environment
The external environment of a country offers both constraints, opportunities and
challenges, some helpful for growth, others less so. Not much has been said about the
various features of a country’s external environment in previous sections of this paper, and
so our discussion here will need to be substantially more elaborate than our brief remarks
above on the internal environment.
A clearly negative factor for growth is involvement in a war with a neighbouring
country, or in civil war. Not only do such events distract policymakers’ attention from
relatively mundane issues of economic policy, but the fighting damages and destroys
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productive assets, diverts key manpower from production, and seriously disrupts access to
markets. It also encourages out-migration, often of the best educated and most skilled
segments of the population. All this was evident, for instance, in the fighting between
Armenia and Azerbaijan in the early 1990s, in the Yugoslav wars of the early to mid-1990s,
in Tajikistan’s and Georgia’s civil strife, and in many other places. Nearly as bad is the
situation of countries whose neighbours or major trading partners are engaged in warfare, or
threatening warfare, since the external political stability that is generally helpful for economic
development is then not assured.
Once political stability is assured - both internally and externally - it is natural to think
next of the various modalities of engagement with the world economy. Deferring discussion
of international alliances and international institutions, the four main aspects of this
engagement are: (a) trade; (b) FDI; (c) migration; and (d) remittances. We already discussed
trade and FDI briefly above, emphasising their benefits.
Migration, if it is mainly out-migration of the relatively skilled, is a mixed blessing. On
the one hand, it usually reflects the lack of well paid jobs for skilled workers in a given
economy (which one hopes would, in due course, be overcome as the economy starts to
grow), but on the other, migrating workers often send back to their families in the home
country a share of their income - remittances - and these flows sometimes provide a
significant share of a country’s foreign exchange earnings. Often, migrating workers will
return home after a few years, bringing both new skills, and often some capital, with them. In
that case, temporary migration can be very beneficial. But in less favourable cases, some
countries are left with almost no highly educated personnel, almost no one with modern
skills. Breaking out of such a position is then immensely hard, since even primary school
teachers, nurses, middle-level civil servants may be in terribly short supply. This issue was
highlighted, for Africa, in CfA (2005), though convincing and effective remedies were not well
developed there.
Overall, then, trade and FDI are normally beneficial to a country, while the balance of
advantage in regard to migration and remittances is mixed. It can also change over time, of
course. Ireland is a good example of that, with decades of out-migration reversing
substantially in the past couple of decades, as sustained growth and rising incomes
increasingly made the country an attractive place to work, with lots of new job opportunities.
Former emigrants, as well as many non-Irish workers, flocked to the country to participate in
its economic boom.
For many countries, the international context of their engagement with the world
economy is defined by the various agreements and organizations they belong to. At the
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simplest level, this mostly means their membership of various free trade areas (FTAs) or
Customs Unions (CUs), and their membership or otherwise of the WTO. Much of the world
is covered by a variety of FTAs, of which the best known outside Eurasia (to which we revert
below) are probably NAFTA, Mercosur (large parts of South America), and the ASEAN
(South-East Asia) FTA. In Africa, too, there are many FTAs, some bilateral, some covering
groups of countries. Indeed so complex is the pattern of FTAs on the continent that some
observers have described it as a ‘spaghetti bowl’. Most of the agreements are not fully
implemented, with most African countries still lacking the technically trained staff to do so
effectively, and in practice the excessive complexity almost certainly serves to inhibit rather
than encourage trade (especially as each agreement tends to include its own provisions
regarding ‘rules of origin’; see Krishna, 2006).
Across the Eurasian landmass the picture regarding trade agreements is extremely
mixed. For China, there are trade agreements with the EU and the USA, plus a growing list
of bilateral agreements between China and mostly Asian partners; the idea of forming a large
FTA encompassing the ASEAN countries plus China has also been mooted, and preparatory
work is under way. For the CIS countries, there is an FTA covering all twelve states.
However, this was agreed in 1994, and has never been ratified by all CIS members, so it
cannot be regarded as especially effective. Since the mid-1990s there has been a CU
among Russia, Belarus, Kazakhstan, Kyrgyzstan, and later, Tajikistan, but this too has never
been fully ratified, the agreement sets out no timetable for implementation of the CU, and
little has been done to harmonise either inter-group or external tariffs or other trade
provisions. This CU became the Eurasian Economic Area in 2000, at the instigation of
Kazakhstan, but there remains little meaningful progress to report.
Within the CIS, the situation of Kyrgyzstan is not untypical. As noted, the country
belongs to the CIS FTA and the above mentioned CU. It also has bilateral FTAs with nine
other CIS members, and belongs to several other multi-state preferential trading agreements,
some involving states outside the CIS. The WTO has warned that this complexity can
undermine the transparency of Kyrgyzstan’s otherwise rather open and liberal trade and
investment regime, and can tend to lock the country into inefficient trade with CIS partners.
Countries often seem to think that agreeing to lots of trade deals can help them to integrate
more effectively with the world economy, but unfortunately, the opposite is the case,
especially where the state is relatively weak and lacks the administrative capacity to manage
all the deals it signs up to.
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Moving West, the EU is now by far the world’s largest and most effective CU, with 27
member states since the latest accession of Bulgaria and Romania in January 2007. Within
the Union, internal tariffs are zero, and the common external tariff is fully implemented.
While some temporary restrictions on the movement of labour are in force for the new
member states, for the most part the EU fully implements the so called four freedoms: the
free movement of goods, services, capital and labour across the Union. All member states
have benefited greatly from the rapid growth of intra-EU trade, and from the EU’s trade with
other parts of the world. Moreover, although the EU does sometimes bow to sectoral lobbies
and impose special trade restrictions from time to time (e.g. textiles trade with China since
mid-2005, footwear trade with China since mid-2006), and imposes some quotas on imports
from non-members of the WTO (e.g. on steel imports from Ukraine, Russia and Kazakhstan),
the Union’s general stance is to favour open and liberal trade. This is notwithstanding the
special provisions in force regarding the agricultural sector, as part of the Common
Agricultural Policy. Since trade policy matters are handled at EU level, the EU has often
been able to prevent member states from restricting imports to protect specific domestic
firms in distress. This relatively tough approach has undoubtedly contributed, over the years,
towards enhancing the competitiveness of EU exporters. In this sense, membership of the
EU serves as an external constraint - and mostly a very desirable one - on the governments
of member states.
For the recent accession states, the eight transition economies that joined the EU in
May 2004 plus the two new ones, the prospect of EU membership also constrained the
governments of these states. It did so, essentially, because the EU required all the incoming
states to implement pretty much the entire acquis communautaire into their respective
domestic legislation, and the process of doing so - once accession approached, and a
timetable was set out - was subject to annual monitoring and reporting by the EU4.
Frequently, when implementing reforms, governments of the accession states were able to
refer to, and indeed to blame, the EU for what they were doing, and this did help to get some
reforms through against domestic opposition. Though implementing the acquis thus
compelled the incoming states to complete the economic reforms needed to construct
functioning market-type economies, it also required them to take on board a lot of measures
that, without the prospect of EU membership, one would not have wished to recommend. In
this sense, the acquis is more than a little top heavy for a set of mostly small and not very
prosperous states. However, the governments concerned evidently took the view that it was
a price worth paying for the ultimate benefits of full membership - let us hope their judgement
proves correct. For countries with no prospect of eventual EU membership, such as Russia,
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for instance, one might well wish to see more liberal economic reforms, but I seriously doubt
whether many economists would advise Russia to seek much guidance from the provisions
of the EU’s acquis communautaire.
Besides the acquis itself, the accession states also had to convince the EU of two
other conditions, namely that they were stable democracies (held to include respecting
minority rights and supporting the ‘rule of law’), and that their economies were able to
withstand competition from the existing EU member states5. This led to some interesting
situations where pressure from the EU required the incoming states to protect significant
minorities, such as Hungarians in Slovakia and Romania, gypsy populations in several
countries, and ironically, Russians in the Baltic States.
The new member states of the Union are expected, in due course, to join the
European Monetary Union (EMU) and to adopt the Euro as their currency (no other countries
are to be permitted the British opt out). Slovenia has already made the Euro its official
currency as from January 2007, as a key stage in that process, but the other new member
states are still probably some years behind. This is because they need to manage their
economies in order to fully satisfy the Maastricht criteria which require: (a) inflation should be
no more than 1½ % p.a. above the inflation rate of the three member states with lowest
inflation; (b) the general government deficit should not exceed (other than for occasional
short periods) 3% of GDP; and (c) the ratio of gross government debt to GDP should not
exceed 60% of GDP (there are some other lesser conditions that we leave out of
consideration). From the standpoint of maintaining credibly stable macroeconomic
conditions - emphasised above as vital for growth - it is hard to dispute the notion that some
conditions along these lines could be helpful. However, I am aware of no economic
arguments for these particular reference numbers (i.e. 1½ %, 3% and 60%) to be used, and
can only surmise that they were adopted because the original members of the Eurozone
proved just about able to satisfy them - but could not have managed anything more stringent.
There is a risk that insistence on exactly this set of criteria might force some countries
to deflate more than they would otherwise wish to, which could be damaging. On the other
hand, once firmly inside the zone there is a risk in the opposite direction, namely that some
departures from the Maastricht conditions might be tolerated by the European Central Bank
without any penalty being imposed on the errant member states. Such departures might
appear perfectly reasonable in the short-term, but in principle they do nevertheless
undermine the credibility of the official Eurozone policy stance. The disciplines of the
Eurozone are, on balance, good for countries such as Italy that have tended to operate an
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overly lax fiscal policy, and for the new member states where fiscal discipline is also not yet
deeply embedded in official or popular thinking about the economy. In this sense, the
Eurozone conditions provide a valuable external anchor, strongly encouraging sound
domestic macroeconomic policy in the member states. But for this to work, the conditions do
need to be credibly enforced.
That said, it should be apparent by now that adoption of the acquis and adherence to
the Maastricht conditions do not guarantee rapid economic growth for the member states of
the Union, they merely provide a supportive framework, within which there is much scope for
the exercise of domestic policy to support or hinder growth. Thus individual member states
grow at quite different rates, with both catching up and lagging behind from one decade to
the next. Sound macroeconomic policy is necessary but not sufficient for sustained, rapid
growth. Drawing on this, and previous sections, we discuss below what additional conditions
ought to be in place for a country to grow strongly.
To conclude this section, we briefly consider how membership of international
organisations can place further constraints upon a country’s domestic economic policies,
sometimes aiding growth, sometimes possibly not. Several states in Eurasia receive
assistance and advice from the World Bank and IMF, but for the most part their roles are so
small as to seem fairly inconsequential for the purposes of the present analysis. Accordingly,
we confine attention to the role of the World Trade Organization (WTO). The WTO’s
principal task is to set and monitor the main rules that govern the conduct of international
trade. To this extent, the WTO sets constraints on all its member governments, as well as
providing a disputes settlement mechanism to handle disagreements over trading matters. It
is easy to find fault with specific features of WTO rules, but probably better on balance for
world trade to remain largely rules-based within the WTO framework; likely alternatives to the
WTO, including a return to tit-for-tat protection around the world, are not very appealing, and
are frankly quite dangerous for the health of the world economy.
The WTO exerts greater influence over countries seeking to join the organization,
since it often seeks commitments not only regarding that country’s trade policy per se, but
over many aspects of domestic policy considered to affect foreign trade indirectly. Several
countries across Eurasia have gone through this WTO accession process relatively recently
and their Accession Protocols have indeed offered significant commitments regarding their
domestic economic policies; e.g. Georgia, 2000; Moldova, 2001; China, 2001; FYROM,
2003; Armenia, 2003. In these situations, the WTO, to some degree, not only serves as a
useful external anchor to sustain good trade policies, but also helps to foster improved
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domestic policies in some areas, such as competition policy and energy policy (among
others).
Some important countries in Eurasia are still outside the WTO, notably Ukraine,
Russia and Kazakhstan (plus a few other, smaller countries). All three have been in
negotiation with WTO since the early to mid-1990s, with many meetings of the relevant
Working Parties, but also many gaps in the negotiations when not much activity was going
on. Some of this reflected changes of government or economic policy in the countries
concerned, affecting their changing perceptions of the urgency of WTO accession, and their
willingness or otherwise to offer acceptable concessions to various trade partners. At the
time of writing, Ukraine seems close to concluding an agreement regarding its accession
(entry may well occur by summer 2007), but the other two countries appear to need more
time. Since Ukraine’s economic growth is likely to depend heavily on success in exporting
manufactured products, accession is especially important to ensure that Ukraine’s exports
have secure access to their major markets. For Russia and Kazakhstan, their major exports
are energy products and raw materials, and these face few restrictions in the world market.
Hence WTO accession is less urgent for them, though still valuable in the longer term as
their economies diversify more into manufacturing and tradable services.
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V. Assembling a Model
Bringing together the various elements discussed above, it is now time to sketch out
the resulting model of growth and development.
The model we propose involves five key features:
• good government, with secure political conditions;
• credible macroeconomic stability;
• savings and investment high enough to sustain adequate growth;
• openness to the world economy, certainly in regard to trade, and desirably in regard
to FDI inflows;
• the discipline of external engagement (e.g. belonging to WTO and an FTA).
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Although the above analysis already makes clear that meeting all these conditions is
no easy task, there are enough success stories around the world to demonstrate that it can
be done. Moreover, the available success stories do not conform to any simple, standard
blueprint, which shows us that many combinations of these features are capable of yielding
sustained economic growth accompanied by improving living standards. Nevertheless, there
is some commonality, and I propose to argue in this section that it can usefully be discussed
under the heading of ‘good governance and sound supportive institutions’. In putting forward
such a claim, naturally, I shall not be asserting that success stories have obviously ‘good’
governance and institutions; and that economic failures have the reverse. Unfortunately, our
world is not that straightforward. Accordingly, I proceed here in three stages. First, I
examine what we ought to mean by good governance and institutions; second, I explain the
conditions under which governance and institutions turn out to be good enough to foster
successful growth; last, I outline some implications of this discussion for economic policy.
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Good governance and institutions
While identifying and characterising the good is not so easy, we can certainly identify
the very bad. For brevity, let me simply mention Zimbabwe (currently experiencing the
highest inflation in the world, and with output and employment falling rapidly) and North
Korea (still a hard-line communist regime, with living standards massively lower than in
South Korea, despite a similar starting point around 1950 or so); Nigeria (too much oil
revenue stolen by the authorities), and Somalia (state collapse) are other examples. These
countries were deliberately chosen for their diversity, but despite that they do have some
common characteristics that point the way to some useful lessons.
What are these characteristics? I think two are really critical: (a) the failure to protect
property rights; and (b) the lack of accountability of the state. The second is much the more
fundamental.
On property rights, Zimbabwe has expropriated thousands of white farmers without
compensation in recent years (resulting in massive declines in farm output and exports), and
the government has cleared numerous small traders and operators in the informal economy
from major cities, ostensibly as part of a ‘clean up’ campaign. When the courts have resisted
these moves, judges have either been fired, or have fled abroad, fearing persecution. The
result is a situation in which few private businesses can feel secure in the property rights,
contributing to the general collapse in private investment in the country. The North Korean
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government recognises few private property rights except those of very small traders, some
workers in arts and crafts, and private plots in agriculture. Virtually all other private economic
activity remains illegal. In Nigeria, the legal framework is in place to protect property rights,
but its effectiveness is undermined by a complex mix of corruption and patronage, not helped
by a slow and very inefficient court system. Those who can find their way through the
‘system’ can prosper, but for others it must be more like a lottery. An important observation
here is that economic agents not only need their property rights protected from predation by
the state, but they also need protection from other private agents; neither aspect is secure
enough in Nigeria. Last, Somalia has had no effective state in place for nearly two decades,
and even when there has been some sort of central authority it has been unclear whether
this would support any sort of sound property rights protection. Hence there is little basis for
private economic activity other than the limited forms that can survive through small, informal
networks (and even these might be subject to ‘protection’ from the current local
warlord/bandit) and deals based on the property rights and courts of some other country (and
even then, one imagines that business risks must be exceptionally severe, to put it mildly).
Accountability is a more complex idea, and potentially it has several distinct
dimensions or aspects. To understand these, it is simplest to proceed by asking some
simple questions:
• Can governments be changed, and if so, how often and through what mechanisms?
Notice that this is not just a simple question about democracy in the sense of voting
periodically for alternative political parties, since even if there is only one major party
there can still be some competition for the top leadership. Also, while we would
naturally like elections to be free and fairly conducted according to the high standards
of such bodies as the OSCE, I am not necessarily taking that for granted either.
• How easy is it for the government in power either to ignore the constitution or to
change it to entrench the power of the current leadership (Zimbabwe has done both,
with apparent impunity)? This is a more complex question in those states, such as
the UK, with no written constitution. Then the question really asks how easy it would
be for a government to change the prevailing understandings and conventions about
the way government operates in the country.
• What effective constraints are in place to prevent a ruling group from
misappropriating the country’s revenues for personal gain, and hence oblige the
group - at least to an acceptable extent - to fulfil its fiduciary responsibilities? In
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practice, this means having a central bank strong enough to withstand government
pressure (with bank governors facing no risk of being fired or worse!), strong
parliamentary oversight of the government’s finances (or equivalent), and a supreme
court also capable of resisting government pressures (again, with judges safe from
government persecution). In recent years, none of this holds in Zimbabwe, little in
Nigeria (explaining the country’s huge illegal diversion of oil revenues).
• What role is played by the parliament (or some equivalent body) in preparing,
debating and passing legislation (as compared, for instance, to rule by decree)?
• To what extent, if at all, are bodies outside government and the legislature consulted
over proposed legislation, and how far do their views ‘count’? For instance, if there
are to be changes in the laws governing private-sector business, might an association
of business lawyers be consulted, or chambers of commerce?
• What role is played by the parliament in reviewing and reporting on various aspects of
government policy? If the parliament reports very critically, can the government
ignore the report with impunity?
• If citizens or firms consider that the government has acted illegally in some matter,
will the courts hear their case, and if the court finds against the government, will the
government take any notice? (e.g. might a minister resign or be fired? Or might
policy be changed?)
• Are the media permitted to criticise the government and its policies, without fear of
arrest or closure? Related to this, are the media free to publicise the views of diverse
political interest groups or parties, not merely those of the current ruling group?
• Are citizens themselves - either individually or through organisations like policy
research centres or NGOs - free to criticise the government and its policies, without
fear of arrest or other penalty (such as loss of their job)?
For the four countries taken as examples of bad practice, it is reasonably clear that
not many of these points could be answered especially positively, with the possible exception
of Nigeria in some respects. Of the four, only Nigeria is currently enjoying some economic
growth, and one suspects that is despite rather than because of the government’s economic
policies (except, to an extent, in key but basic areas like maintaining macroeconomic
stability).
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29
Good enough governance and institutions
Within the Eurasian region, it is worth quoting from some recent IMF Country Reports
(my italics):
The authorities saw spurring investment spending as key to boosting growth.
Staff concurred but also noted that the really binding growth bottlenecks seemed to be
insecure property rights, corruption, and a regulatory jungle—structural deficiencies
that were also reflected in underdeveloped financial markets. (Report on Ukraine,
February 2007).
Structural reforms outside the banking sector remain very slow. The authorities agreed
that structural reforms are behind schedule and claimed that high oil prices and robust
growth make it difficult to mobilize political support for reforms. (Report on Russia,
December 2006).
Directors urged greater progress in addressing structural obstacles to job-intensive,
inclusive growth........More broadly, efforts should continue to improve the business
climate and reform education, as well as to alleviate rural poverty through promoting
agricultural growth. (Report on India, February 2007).
These comments all apply to countries that are currently growing quite rapidly, and as
the second comment states, this in itself tends to discourage countries from undertaking
major economic reforms. For reforms are frequently seen - at least by top political elites - as
neither necessary, nor even desirable. Yet many countries find it hard to introduce reforms
in more difficult economic times, so these attitudes significantly impede the reform process.
For these countries, and many others facing similar conditions, it is therefore interesting to
consider what steps could be taken that might ‘unblock’ reforms, and hence how we might
improve overall economic functioning.
Within the EU, there have long been concerns about the Union’s slow growth and
lagging competitiveness, these concerns finding expression in the so called Lisbon Strategy
agreed by the EU in March 2000. At its launch, the Strategy was designed to encourage
member states to boost European spending on R&D (with an eventual goal of spending 3%
of the Union’s GDP, just under double the starting point), accompanied by measures to make
30. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
labour markets more flexible and to improve education and skills. In the early years,
responses by the member states to this new challenge ranged from minimal to modest, so in
2005 the whole process was reviewed and relaunched (see Commission, 2005).
According to Commission, 2005, pp.3-4 (my italics and emphasis):
Today, we see that progress has at best been mixed. While many of the fundamental
conditions are in place for a European renaissance, there has simply not been enough
delivery at European and national level. This is not just a question of difficult economic
conditions since Lisbon was launched, it also results from a policy agenda which has
become overloaded, failing co-ordination and sometimes conflicting priorities. For some
this suggests that we should abandon the ambition of 5 years ago. The Commission
does not agree. The challenges we face are even more urgent in the face of an ageing
population and global competition. Unless we reinforce our commitment to meeting
them, with a renewed drive and focus, our model for European society, our pensions,
our quality of life will rapidly be called into question.
The need for urgent action is confirmed by the report from the High Level Group
chaired by Wim Kok last November. It identifies a daunting challenge. According to
Kok, “The Lisbon strategy is even more urgent today as the growth gap with North
America and Asia has widened, while Europe must meet the combined challenges of
low population growth and ageing. Time is running out and there can be no room for
complacency. Better implementation is needed to make up for lost time”. Faced with
this challenge Europe needs to improve its productivity and employ more people.
On current trends, the potential growth of the European economy will halve over the
coming decades and reach just over 1% per year.
Across the EU, therefore, I would see the recent lack of reforms as a consequence of
the complacency born of a different kind of economic success: not rapid growth as in the
emerging economies, but rather the enjoyment of already high incomes and living standards
(except for the new entrants, which might be expected to strive to catch up, as Ireland did,
and Spain is doing). This complacency is evidently something we can live with for a while,
but eventually Europe is likely to be overtaken economically by the more dynamic parts of
the world, and perhaps then our leaders will take notice and address the challenges already
outlined clearly in the Lisbon Agenda.
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Thus for the fast-growing countries of Eurasia, as well as for the already prosperous
countries, the socio-political configuration needed to promote further economic reforms is not
very favourable, in my view. Nevertheless, in terms of the two main requirements for good
governance that we identified above - protecting property rights and ensuring accountability
of government - many of the conditions that we would like to see are already there. But there
are some worrying gaps, such as Russia’s politically coloured property-rights protection, and
the political pressure on much of the media there; the poor property rights protection in
Ukraine; the limited opportunities to change or criticise the government in Kazakhstan
(which, for the time being, matters less than it might, given the strong growth orientation of
the government - in other words, it delivers results). Many similar examples could be given.
Good governance is also a matter for firms. In that context it is usually interpreted to
mean protection of shareholders’ rights, especially those of significant minority shareholders,
but I think that is too narrow a conception. Other relevant interest groups might also include
the workforce, a firm’s customers, its bankers and other lenders, and the local community
where its production takes place. Thinking along these lines makes governance seem like a
very complicated notion, involving some rather delicate juggling. It becomes even more so if
we choose to take on board modern notions of corporate social responsibility, with the idea
that firms should strive to uphold high environmental standards (promoting their ‘green’
image), high labour standards, and so on. However, given the focus of this paper on issues
of growth and efficiency in modern economies, we would be as well here to emphasise the
need for firms to be profitable, innovative, and inclined to invest in new products, services
and markets. Institutional arrangements that promote this will likely prove most effective both
for firms’ own success, and for maximising their contribution to growth and development in
the wider economy.
31
Economic policy
What does the above tell us about the approach we should adopt when advising a country
about its future economic policy? At the risk of appearing simplistic, I shall simply list a few
points that seem to me to merit careful consideration.
• Be modest. By this I mean two things: first, we should not exaggerate what we know
and understand about the requirements for growth and development; second, we
should not rush in with recommendations just because something isn’t quite ‘as we
32. Studies & Analyses CASE No. 337 - The Political Economy of Growth and Governance
do it in Western Europe and the US’. If something is working tolerably well and an
economy is growing quite satisfactorily, we should not rush in to ‘fix’ it. Instead, we
should be trying to understand why it works as it does, in case the country concerned
might itself offer lessons for others. There is no simple, single model, either of
economic systems or economic policy.
• If there is an identified problem that we seek to address (e.g. lack of a functioning
system for settling business disputes), then where possible we should give advice
that builds on practices, institutions and organisations that already exist, and are
familiar in the country concerned. That is more likely to be successful than an
approach that seeks to transplant a ‘ready-made solution’ from another country.
• Beware of the ‘scattergun’ approach to policy advice. This is the approach that,
essentially, advises a country to undertake reforms in practically every area of
economic policy, usually trying to make the country’s economic arrangements look
quite like those of the US or UK, or some other supposedly ‘model economy’. While if
we recommend enough things, there is a good chance that some of them will be valid
and sensible, the approach is intellectually lazy. Moreover, if taken seriously by the
recipient country, especially if the latter is small and poor, then its public
administration is likely to be seriously overloaded by the resulting tasks. This surely
cannot serve the presumed end of boosting the country’s economic performance.
Better to focus on two or three key recommendations, I would argue, though at times
this runs up against the incentives often faced by policy advisers (in the sense that
they - or their line managers - might not feel they are providing ‘value for money’ if
they advise a country to do so little).
Finally, in providing such advice, I strongly concur with the view of Rodrik (2004), who
argues that we should identify the key constraints (institutional, policy, or whatever) that
appear to be blocking growth in a given country, and focus our policy advice on these areas.
This, of course, is a difficult message to implement, since it demands very careful analysis of
the country concerned, not merely at the level of its laws and official policies, but at the far
deeper level of the institutions and practices that influence their implementation and
effectiveness.
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VI. Conclusions on Governance
Our story is already too long, but let me conclude by trying to sum up where we have
reached. First, we have sketched a model of what we may term the political economy of
growth that we summed up in five points, repeated here for reference:
33
Model: Political Economy of Growth
• good government, with secure political conditions;
• credible macroeconomic stability;
• savings and investment high enough to sustain adequate growth;
• openness to the world economy, certainly in regard to trade, and desirably in regard
to FDI inflows;
• the discipline of external engagement (e.g. belonging to WTO and an FTA).
We then argued that such a model needed to be underpinned by suitable governance
arrangements, both at the level of government and at the level of firms. Focussing on the
former, we suggested that good governance could be thought of as a mix of two main
elements, each quite complex in practice. Thus:
Governance Arrangements
• protection of property rights
• accountability of government.
For countries not yet prosperous and not yet growing very much, their most urgent
need must be to improve governance arrangements in ways that make government promises
to respect and protect private property rights credible enough to stimulate the entry of new
firms into the market, and to encourage growth in private investment. This is very much what
happened in China, for example. No one would claim, I believe, that China’s governance
arrangements conform to any supposed ‘ideal’ model, but they are amazingly better than the
near anarchy that prevailed during the terrible years of the Cultural Revolution (mid-1960s to
mid-1970s). Moreover, hard lessons learned then convinced China’s leaders that they would
be judged on the economic success that they delivered, not on their ideological rectitude,
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and this has helped to make their economic promises credible. Formally, a good deal of
China’s economic arrangements is still not governed by clear, legally enforceable property
rights in the Western sense, but they work because people believe in them. Running an
economy is like a repeated game, in the sense that once promises are made and kept,
economic agents increasingly believe that they will continue to be kept. This facilitates
further growth.
In contrast, Nigeria’s leaders have stolen oil money for decades and are expected go
on doing so, with the result that few people expect rapid improvements in publicly provided
services like education and health care, or in basic infrastructure. Some growth is possible
under these conditions, but not much, and most ordinary people remain shockingly poor.
When government promises are repeatedly broken, most sensible people expect that to
continue and hence adapt themselves as best they can to that situation.
Across Eurasia, with very few exceptions, most countries are not among the poorest
in the world, and as we saw above, most belong to one of two groups: (a) the already
prosperous countries of the European Union; and (b) the rapidly growing but poorer countries
of the CIS, China, India, and a few others. For both groups of countries, we saw that despite
shortcomings, property rights protection was sufficiently in place to foster growth where it
was needed, and accountability conditions are either good, or recently improved. We saw
that for different reasons, both groups of countries might now be quite disinclined to rush
through further economic reforms, except as and when they identified pressing economic or
social problems that needed attention.
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35
Endnotes
1. The frequency of military coups, spells of military dictatorship, and, indeed, civil wars around world
shows that this is not a condition to be taken for granted anywhere. But an extensive investigation of
this aspect of the ‘rule of law’ is beyond the scope of this paper.
2. A little outside the scope of this paper, but nevertheless developing a really interesting idea about
property rights and the oligarchy in Russia, is the recent paper, Braguinsky and Myerson (2007).
3. See, for instance, Sachs and Warner, 2001; also Mehlum et al., 2006, for an extension of the
analysis to illustrate the role of institutions in influencing the outcomes in particular countries.
4. The acquis communautaire is the full set of rules, regulations and legislation governing the EU, and
it is often estimated to run to many tens of thousands of pages. The process of monitoring each
country’s progress in implementing the acquis can be studied by reviewing the Commission’s annual
monitoring reports, some of which were extremely critical on certain topics. See the relevant part of
the EU website: http://ec.europa.eu/enlargement/index_en.htm
5. These three conditions together: implementing the acquis; operating as stable democracies; and
being able to withstand economic competition from existing member states, are often referred to as
the Copenhagen criteria for accession. They were first adopted at the June 1993 European Council
meeting that took place in Copenhagen.
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