1

Institutional Change and

Growth-Enabling Governance Capabilities

Nicolas Meisel

Strategy and Research Dept - French Development Agency (AFD)

Jacques Ould Aoudia

Treasury and Economic Policy Directorate - Ministry of the Economy

2

First, What are we trying to measure?

• 2 big ways of regulating a social system– informal rules and interpersonal relationships (LAO)– formal rules and de-personalised (or impersonal)

institutions (Open Access Order)

• 2 asymetric mechanisms.– de-personalisation of social regulation systems. – effort to formalise rules and detach institutional

functions from persons.

Social Instability

3

What do our data say? (1)

• An Original Database “Institutional Profiles”– Survey completed in 2006 ; 85 countries (90% of the

world GDP and pop) ; 356 elementary variables – 9 institutional functions: 1. political institutions ; 2.

safety and order ; 3. administration effectiveness; 4. markets’ operating freedom ; 5. coordination of actors and strategic vision ; 6. security of transactions and contracts ; 7. regulation of competition and corporate governance ; 8. openness ; 9. social cohesion

– Available at www.cepii.fr

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What do our data say? (2)

• An original Statistical Tool: Exploratory Data Analysis (EDA)– Why this tool?

• multi-criteria analysis tool. 1st need. • “let the data speak for themselves”. 2nd need.

– Exploratory Data Analysis: refined descriptive statistics

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What do our data say? (3)

• Results(i) What is “Good governance”?...

...nothing else than the arrival point of the long process of rules formalisation.

(ii) “Good Governance” is highly correlated with Income Levels...

(iii) ... but not with Income Growth

What’s the missing factor, what are the “other governance capabilities” explaining these growth differentials?

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(i) What is « Good Governance »?...

ARG

BEN

BFA

BGD

BGR

BOL

BRA

BWA

CAN

CHL

CHN

CIV

CMR

COL

CZE

DEU

DOM

DZAEGY

ESP

EST

ETH

FRA

GAB

GBRGHA GRC

GTM HKG

HUN

IDN

IND IRL

IRN

ISR

ITA

JOR

JPN

KAZ

KEN

KHM

KOR

KWT

LBN

LKA

LTU

MAR

MDG

MEX

MLI

MOZMRT

MUS

MYS

NER

NGA

NOR

NZL

PAK

PER

PHL

POL

PRT

ROM

RUS

SAU

SEN

SGP

SWE

SYR

TAI

TCD

THA

TUN

TUR

UGA

UKR

USA

UZB

VEN

VNM

YEMZAF

ZWE

-5

-3

-1

1

3

5

7

-9 -4 1 6 11

CUB

Nord-Est : libéralisme tempéré mild liberalism

Nord-Ouest : paternalisme-autoritaire autoritarian-paternalism

Sud-Ouest : informel informal

Sud-Est : libéralisme purpure liberalism

Etat - sécurité / State - security

libertés / freedom

sociétés o

ù les règ

les son

t fon

dées su

r le dro

it /law

-based

societies

soci

étés

où

les

règ

les

son

t fo

nd

ées

sur

le li

en /

c

om

mu

nit

y-b

ased

so

ciet

ies

7

ARG

BEN

BFA

BGD

BGR

BOL

BRA

BWA

CAN

CHL

CHN

CIVCMR

COL

CUB

CZE

DEU

DOM

DZA

EGY

ESP

EST

ETH

FRA

GAB

GBR

GHA

GRC

GTM

HKG

HUN

IDN

IND

IRL

IRN

ISR

ITA

JOR

JPN

KAZ

KEN

KHM

KOR

KWT

LBN

LKA

LTU

MAR

MDG

MEX

MLIMOZ

MRT

MUS

MYS

NER

NGA

NOR

NZL

PAK

PER

PHL

POL

PRT

ROM

RUS

SAU

SEN

SGP SWE

SYR

TAI

TCD

THATUNTUR

UGA

UKR

USA

UZB

VEN

VNMYEM

ZAF

ZWE

y = 0,2651x + 7,9346

R2 = 0,7072

4

5

6

7

8

9

10

11

12

-9 -4 1 6 11

Niveau de formalisation des règles (coordonnées de l'axe 1 de l'ACP)

Niv

eau

de

dév

elo

pp

emen

t (P

IB p

ar t

ête

en lo

g)

"bonne gouvernance"

(ii) « Good governance » is linked to the level of income...

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ZWE

ZAFYEM

VNM

VEN

UZB

USAUKR

UGA

TURTUN

THA

TCD

TAI

SYR

SWE

SGP

SEN

SAU

RUS

ROM

PRT

POL

PHL

PER

PAK

NZL

NOR

NGA

NER

MYS

MUS

MRT

MOZ

MLI

MEX

MDG

MAR

LTU

LKA

LBN

KWT

KORKHM

KEN

KAZ

JPN

JOR

ITA

ISR

IRN

IRL

IND

IDN

HUN

HKG

GTM

GRC

GHA

GBR

GAB

FRA

ETH

EST

ESP

EGY

DZA

DOM

DEU

CZE

CUB

COL

CMR

CIV

CHN

CHL

CAN

BWA

BRA

BOL

BGR

BGD

BFA

BEN

ARG

y = 0,0009x + 0,0163

R2 = 0,061

-3%

-1%

1%

3%

5%

7%

-9 -4 1 6 11

Niveau de formalisation des règles (coordonnées de l'axe 1 de l'ACP)

"bonne gouvernance"

Per

form

ance

éco

nom

ique

(cro

issa

nce

du p

rodu

it pa

r tr

avai

lleur

)

perf

orm

ance

éco

nom

ique

(iii) … but NOT to the speed of income growth

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What explaining factor?

ZWE

ZAFYEM

VNM

VEN

UZB

USAUKR

UGA

TURTUN

THA

TCD

TAI

SYR

SWE

SGP

SEN

SAU

RUS

ROM

PRT

POL

PHL

PER

PAK

NZL

NOR

NGA

NER

MYS

MUS

MRT

MOZ

MLI

MEX

MDG

MAR

LTU

LKA

LBN

KWT

KORKHM

KEN

KAZ

JPN

JOR

ITA

ISR

IRN

IRL

IND

IDN

HUN

HKG

GTM

GRC

GHA

GBR

GAB

FRA

ETH

EST

ESP

EGY

DZA

DOM

DEU

CZE

CUB

COL

CMR

CIV

CHN

CHL

CAN

BWA

BRA

BOL

BGR

BGD

BFA

BEN

ARG

y = 0,0009x + 0,0163

R2 = 0,061

-3%

-1%

1%

3%

5%

7%

-9 -4 1 6 11

Niveau de formalisation des règles (coordonnées de l'axe 1 de l'ACP)

"bonne gouvernance"

Per

form

ance

éco

no

miq

ue

(cro

issa

nce

du

pro

du

it p

ar t

rava

illeu

r)

per

form

ance

éco

no

miq

ue

?

?

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Discovering the Growth-enabling “Governance Capabilities” (1)

• Group 1 (DV) vs Group 2 (CV) (p36)– Coordination and strategic vision. – Quality of basic public goods and security of agricultural

transactions and PR.

• Group 2 vs Group 3 (p37)– Coordination and strategic vision of actors is not a

discriminating factor. – The most discriminating variables = “good governance”

agenda = Security of transactions + control of corruption + Administration efficiency + transparency.

• Group 1 vs Group 3 (developed)? (p38)– In fact, almost everything. – Yet, it is the standard good governance prescription.

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Discovering the Growth-enabling “Governance Capabilities” (2)

• Why do these capacities generate higher growth in group 2?

– make up for the destabilisation of the social order– create cooperation-contingent rents targeting key

particular interest groups to align their interests on desirable common goals

– curb uncertainty, thus reducing transaction costs, stabilizing expectations of actors and lengthening their horizons

– instrumental to high and sustained rates of investment and growth

“Governance Focal Monopoly”

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Further Steps and Practical implications

The good governance agenda has turned around a unique dimension, a uni-dimensional set of measures and prescriptions which say: “get formal rules, get formal institutions”, as they function in rich countries.

Broaden the scope of “good governance” with 2 new dimensions and sets of measures:

• coordination and anticipation • openess of social orders