Abstract
Recent years have seen the emergence of a considerable volume of literature on governance and its role in economic and social development of a country. This paper provides a critical review of the literature. This review brings into the open a number of serious conceptual, measurement, and data issues as well as the existence of an Asian governance paradox—i.e., a general disjunction between growth and governance in most Asian economies. This paradox seems to suggest that much of the current policy discussion on governance is essentially faith-based. It calls into question the quality of the existing data and the analytical basis of the policy orthodoxy.
Highlights
There is a broad consensus in the development community that governance has a critical bearing on economic and social outcomes
This paper provides a critical review of the recent economic literature on governance
An important feature of facts-based indicators vis-à-vis perception-based indicators should be noted: facts-based indicators are replicable and more transparent than perception-based indicators. This does not imply that the facts-based governance indicators are necessarily more objective; even facts-based indicators embody a significant degree of subjective judgment—in the choice of facts as well as in the interpretation
Summary
There is a broad consensus in the development community that governance has a critical bearing on economic and social outcomes. Following the lead of the World Bank, all multilateral development and financial institutions pursue an active agenda of governance reform in developing countries This agenda reflects the current development paradigm that views good governance as an essential ingredient of economic growth: Good governance has been suggested to lead to a more efficient division of labor, higher productivity of investment, and efficient implementation of social and economic policies (United Nations 2005). The spectacular economic achievements of most of developing Asia—which are associated with rapid economic transformation, poverty reduction, and concomitant improvements in social indicators—are inevitably attributed to the region’s success in ensuring good governance. While such generalizations are intuitively appealing, they appear to fly in the face of facts. The paper concludes with a brief sketch of an agenda for future reform in developing Asia
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