This study uses the World Bank’s worldwide governance indicators to examine whether a country with governance ‘surplus’ in a given base year (1998) grew faster on average in a subsequent period (1998-2011) than a country with governance ‘deficit’. Governance is defined in several dimensions, including government effectiveness, political stability, control of corruption and regulatory quality, voice and accountability, and rule of law. The study finds that government effectiveness, political stability, control of corruption and regulatory quality all have a more significant positive impact on country growth performance than voice and accountability and rule of law.
When pooling all the countries in the world together, there is no difference in growth performance between governance surplus countries and deficit countries. But when the analysis is broken down by region, governance quality does have a significant impact on growth performance, especially in developing Asia, and the Middle East and North Africa. Regional specificities of both governance and growth are therefore important to consider.
In developing Asia, countries with governance surplus in government effectiveness, regulatory quality, and control of corruption grew close to 2 percentage points faster annually than those with a deficit in those indicators during 1998-2011.
In the Middle East and North Africa, countries with a governance surplus in political stability, governance effectiveness, and control of corruption grew 1.5-2.5 percentage points faster annually than those with a deficit in those indicators during the same period.
The results indicate that while better governance correlates with faster growth and higher income levels, its relationship with development may vary across dimensions of governance and a country’s stage of development. The authors suggest that low-income countries should perhaps strive for more effective government, better regulatory quality and rule of law, and tighter control of corruption, while graduating to higher income entails improving citizen participation and government accountability. Middle- and high-income countries are likely to reap considerable rewards from their citizens’ greater voice, political stability, and word-class institutions. By focusing on the biggest hurdles to growth and development, countries are more likely to see their governance reform efforts succeed.
