How are information flows linked to governance? This paper from Economics and Politics presents a new indicator, the transparency index, to measure the frequency with which governments update economic data made available to the public. It also uses the existence of a Freedom of Information Act as an indicator of transparency. Cross-country analysis shows that countries with better information flows, as measured by these indices, have better quality governance.
Information is a critical component of efficient, well-functioning markets, both economic and political. More information allows for better analysis of events which are significant to people’s economic and social well-being. It allows decision-makers to evaluate opportunities and manage risks and enhances the possibility that decisions will improve social welfare. The importance of information in markets for different types of goods and services has long been recognised. Recent papers have examined evidence linking the responsiveness of governments and private actors to better information provided by the media.
Two transparency indicators are used to analyse the relationship between information flows and governance: a transparency index and the existence of a Freedom of Information Act. Regression results show that more transparent governments govern better.
- A new transparency index assesses the availability of economic data by checking a range of sources. It indicates how much economic information governments are willing to disclose.
- The existence of a Freedom of Information Act and the length of time for which it has been in existence is also used as an indicator. This reflects the overall legislative environment for transparency.
- Even after controlling for variables of political history and legal heritage, there is a strong positive relationship between transparency and governance. It is likely that this effect runs from the former to the latter, in that greater transparency improves governance.
- The data does not show that better governments are more likely to provide more information on economic data. They may however be more likely to provide more information through Freedom of Information laws.
These preliminary results of a strong relationship between governance and transparency indicate that the topic is worthy of further empirical research. They have several implications:
- Good policymaking requires up-to-date information. Governments that do not produce, organise and share information will be hampered in policymaking.
- Better governance is correlated with higher growth. So, extrapolating, there is a close relationship between information flows and how fast economies grow.
- Better decision-making in economic and political markets boosts growth. Many different policy choices and institutional features affect information flows.
- Governments can choose to publish data and other information on their activities. They can also choose whether or not to establish the regulatory system and organisational structure that allows production and dissemination of data and access to information.
- Advising countries on the importance of processing and sharing data and making this data widely available is policy advice that can boost economic growth.
NB: If you do not have online access to the journal Economics and Politics, an earlier version of this paper is available from the World Bank.