Governance and Development

TLDR: In this paper, the authors discuss whether or not "governance" is an important source of variation in development experiences and draw four main conclusions: governance is best thought of a subset of "institutions" and as such emphasis on governance is consistent with much recent academic work Nevertheless, governance is a quite vague rubric which is difficult to unbundle.

Abstract: In this chapter, we discuss whether or not “governance” is an important source of variation in development experiences We draw four main conclusions First, governance is best thought of a subset of “institutions” and as such emphasis on governance is consistent with much recent academic work Nevertheless, governance is a quite vague rubric which is difficult to unbundle Second, the governance of a society is the outcome of a political process and as such is closely related to the literature on the political economy of development Third, improving governance necessitates understanding the nature of the entire political equilibrium Finally, an important research frontier is understanding the forces that create or impeded endogenous changes in governance

Figures

Figure 1: Supervisor Cowperthwaite’s excise round, 12

Table 1: The World’s Most Poorly Governed Countries

Figure 7: Corruption and Income across Brazilian Municipalities

Figure 13: ‘Weberianness’ and Government Effectiveness

Figure 3: Income and Regulatory Quality

Figure 14: Clientelism and Innovative Laws in Italy

Full text

Governance and Development
CRED WP 2010/07
Jean-Marie Baland, Karl-Ove Moene, and James A. Robinson
Center for Research in the Economics of Development
University of Namur
1

Governance and Development

Jean-Marie Baland
y
Karl-Ove Moene
z
James A. Robinson
x
January 2009

Written as a chapter in the Handbook of Development Economics, edited by Dani Rodrik
and Mark Rosenzwe ig to be published by North Holland. We are grateful to Frederico Finan
and Robert Putnam for providing us with their data to Mara Angelica Bautista for her research
assistance and Dani Rodrik for his detailed comments on an earlier draft.
y
C.R.E.D., Facultes Universitaires Notre-Dame de la Paix, 8 Rempart de la Vierge, B-5000
Namur, Belgium. e-mail: jean-marie.baland@fundp.ac.be.
z
Department of Economics, University of Oslo, Box 1095, NO-0317 Oslo, Norway, e-mail:
k.o.moene@econ.uio.no
x
Harvard University, Department of Government and IQSS, 1737 Cambridge St., Cambridge
MA02138; e-m ail: jrobinson@gov.harvard.edu.

Abstract
In this paper we discuss whether or not `governance' is an important source of
variation in development experiences. We draw four main conclusions. First, gov-
ernance is best thought of a sub-set of `institutions' and as such emphasis on gov-
ernance is consistent with much recent academic work. Nevertheless, governance
is a quite vague rubric which it is dicult to unbundle. Second, the governance of
a society is the outcome of a political process and as such is closely related to the
literature on the political economy of development. Third, improving governance
necessitates understanding the nature of the entire political equilibrium. Finally,
an important research frontier is understanding the forces that create or impeded
endogenous changes in governance.
2

1. Introduction
Like it or not there are fashions in social science and in beliefs about which par-
adigm is the correct one for understanding the world. Such fashions are highly
prevalent in the study of economic development. When Max Plank famously re-
marked that \science advances one funeral at a time" he seriously underestimated
the creativity of the scholars, p olicymakers and practitioners in this eld and their
willingness to accept new ideas. A current paradigm puts issues of \gove rnance"
at the heart of an understanding of development. Poor countries are poor because
they have bad governance and countries that grow or are rich are those that im-
proved their governance. Such a view of development is now enshrined as a key
mission of the World Bank whose former President Paul Wolfowitz (2006) summed
up this conventional wisdom in the following way during a speech in Indonesia
\In the last half-century we have developed a better understanding
of what helps governments function e ectively and achieve economic
progress. In the development community, we have a phrase for it. We
call it good governance. It is essentially the combination of transpar-
ent and accountable institutions, strong skills and competence, and a
fundamental willingness to do the right thing. Those are the things
that enable a government to deliver services to its people eciently . . .
An independent judiciary, a free press, and a vibrant civil society and
important components of good governance. They balance the power
of governments, and they hold them accountable for delivering better
services, creating jobs, and improving living s tandards."
In practice bad governance is often associated with corruption and reecting
this President Wolfowitz continued
\Today one of the biggest threats to development in many countries,
including I think here, is corruption. It weakens fundamental systems,
it distorts markets, and it encourages people to apply their skills and
energies in nonproductive ways. In the end, governments and c itizens
3

will pay a price, a price in lower incomes, in lower investment, and in
more volatile economic uctuations."
One can easily nd a plethora of examples from the development experience
of the past 50 years which loosely support the notion that bad governance is the
root of underdevelopment. The locus classicus of how poor governance derailed
development in Africa is Tony Killick's Development Economics in Action. Killick
reports in detail the sad litany of governance failures in Ghana in the 1960s. A
startling example is the construction of a fruit canning factory \for the pro duc tion
of mango products, for which there was recognized to be no local market, [and]
which was said to exceed by some multiple the total world trade in such items"
(Killick, 1978, p.229). The governments own report on this factory is worth quot-
ing at some length (Killick, 1978, p. 233)
\Project A factory is to be erected at Wenchi, Brong Ahafo, to produce
7,000 tons of mangoes and 5,300 tons of tomatoes p er annum. If
average yields of crops in that area will be 5 tons per acre per annum
for mangoes and 5 tons per acre for tomatoes, there should be 1,400
acres of mangoes and 1,060 acres of tomatoes in the eld to supply
the factory.
The Problem The present supply of mangoes in the area is from a few
trees scattered in the bush and tomatoes are not grown on commercial
scale, and so the production of these crops will have to start from
scratch. Mangoes take 5-7 years from planting to start fruiting. How
to obtain sucient planting materials and to organize pro duction of
raw materials quickly become the major problems of this project."
Killick's acerbic comment is that \it is dicult to imagine a more damning
commentary on the eciency of project planning" stated a whole year before
the factory was constructed. This is certainly an example of dreadful governance
leading to a huge misallocation of resources and helping to perpetuate the poverty
of Ghana. Nevertheless, there is a big jump from examples of bad governance like
4

Frequently asked questions

Q1. What was the first step in the process of centralization of authority within the union movement in both?

The intervention of the national union confederation to end the strikes in construction was the initial step in a process of centralization of authority within the union movement in both Norway and Sweden, a process that was encouraged and supported by employers. 

Q2. What was the economic decline of Sierra Leone during the period of Siaka Stevens?

During this period, under the presidencies of Siaka Stevens until 1985 and subsequently Joseph Momoh, the economy declined almost monotonically and state institutions collapsed. 

Q3. How many people can be equalized by the equality multiplier?

Using data on 18 OECD countries over the period 1976-2002, Barth and Moene (2008) are able to identify an equality multiplier of more than 50 per cent. 

Q4. What are the main reasons that patrimonialism is disastrous for economic policy and performance?

There are several reasons that this is disastrous for economic policy and performance and they hinge mostly on how the exchange is structured in order to maximize the control and bargaining power of those running such regimes. 

Q5. What does the author argue that reforms may not work?

The authors argue that this may not work either because de facto power may persist and may override the e ects of reforms to political institutions. 

Q6. What are some of the variables that are correlated with development?

Some variables, such as measures of constraints on the executive and measures of checks and balances are robustly correlated with development (Acemoglu, Johnson and Robinson, 2005a, Henisz, 2000). 

Q7. What is the main argument that conservative critics have made about social reform?

More recently, conservative critics have made the re-54verse argument that market forces are steadily eroded by social reform with bad consequences for economic performance (Lundberg, 1985). 

Q8. What is the case that the incentives of those in power are changed?

It may also be the case that the incentives of those in power are changed, perhaps because of technical innovation or new market opportunities, and this may change economic institutions the authors well. 

Q9. What was the reason why the South was not innovative?

Perhaps more importantly, especially in the context of the potential for future economic growth and industrialization, the South was not even innovative for the sectors in which it specialized.