Bureaucratic Quality Research Articles

Public Spending, Quality of Bureaucracy and Economic Growth: A Theoretical Analysis

This paper develops a theoretical framework to investigate the relationship between public spending and economic growth, where public spending provides both productive capital and unproductive services. We take into account the quality of bureaucracy with the possibility of rent-seeking motives. A key feature of the model is that it distinguishes between utility enhancing and productivity enhancing public spending. In the absence of rent-seeking motives, the paper demonstrates that public spending will promote economic growth only if marginal productivity of spending is high enough to offset the potential output loss due to increased taxation. In the presence of rent-seeking, however, the impact of public spending on economic growth depends on the quality of bureaucracy and how the latter impinges upon the rentseeking behaviour. The analysis shows that while improvement in bureaucratic quality would unambiguously raise the share of utility enhancing public spending, its impact on economic growth would depend on how bureaucratic quality influences the relative magnitudes of the two types of public spending as well as on how far bureaucratic extraction will be controlled as a result of improvement in bureaucratic quality. Bureaucratic extraction is likely to be minimised with strong institutions and effective monitoring and accountability mechanisms thereby improving the prospects of economic growth. JEL Classification: C61, D23, D61, D73, H50 Keywords: Rent-seeking, Quality of Bureaucracy, Public Goods, Public Expenditures

Slavery, Reconstruction, and Bureaucratic Capacity in the American South

Conventional political economy models predict taxation will increase when the franchise is expanded to include more low-income voters. We argue that in societies where social status is a cleavage, extensions of the franchise to low-status groups may lead to not only greater redistribution but also policies encouraging social integration. Therefore, elites can use the threat of desegregation to unite both wealthy and poor members of high-status groups against taxes, and weaken the bureaucratic capacity essential for tax collection. We demonstrate this argument by studying the effects of the extension of voting rights to African Americans in the United States at the end of the Civil War. We show that during Reconstruction, under an occupying North, per capita taxation was higher in counties with more former slaves and slaveholdings. After Reconstruction, per capita taxes fell and bureaucratic capacity was weaker where the legacy of slavery was stronger. We find that higher intrawhite economic inequality was associated with lower taxes and lower bureaucratic quality in the post-Reconstruction era in counties with more enslaved people and slaveholdings. These results suggest that Southern elites could successfully build cross-class coalitions against taxation in places where whites were more threatened by desegregation and sought to protect their racial status.

The Determinants of Income Distribution, an Empirical Analysis of Developing Countries

Income Distribution, which is a center of discussion in economic theory, has recently evolved from theory to application. The role of the government and institution in income distribution, especially in the developing countries, needs in-depth evaluation so that further policies can be constituted. This aspect of income distribution has often been empirically explored in developed countries but there is still gap present in developing countries. The present study is an attempt to fill the gap in research related to fiscal, institutional and macroeconomic determinants of income distribution in a sample of 50 developing countries through using Panel Estimation Technique covering a period from 1995 to 2015 with five years frequency. The study analyzes income distribution from three dimensions: Gini coefficient, Income share of the poorest 20% and Poverty gap. The study finds that while government current spending hinders equal distribution of income, social spending facilitates it. Control of corruption and improvement in bureaucratic quality has negative effects on the redistribution of income. Rising inflation appears to temporarily benefit the poorest income share while unemployment, per capita income and trade openness does the opposite.

The World System and the Hollowing Out of State Capacity: How Structural Adjustment Programs Affect Bureaucratic Quality in Developing Countries

The administrative ability of the state to deliver effective policy is essential for economic development. While sociologists have long devoted attention to domestic forces underpinning state capac...

The role of country governance on value-added tax and inequality

Income inequality is a growing concern for regulators because it brings adverse consequences towards social stability, institutional stability and economic performance. One of the popular ways to reduce income inequality is through the implementation of Value Added Tax (VAT) despite of many criticisms on its regressive nature. Hence, using a wide data range from 1984 to 2014, we study the impact of VAT on income inequality in both developed and developing countries. Besides, this is the fi rst study that seeks to focus on the moderating role of country governance in enhancing the effect of VAT on income inequality. We use the Generalized Method of Moments (GMM) to overcome the endogeneity, autocorrelation and heteroscedasticity issues. The results suggest that the VAT reduces income inequality but the positive effect is contingent upon the existence of a set of good country governance. Countries that have higher quality of bureaucracy, greater democratic accountability, high government stability, effective law and order, low political risk and favourable socioeconomic conditions stand to benefit more from the VAT system in terms of narrowing the income inequality. Therefore, we conclude that better institutions improve the tax collection and public service delivery, which is a crucial element in achieving the economic objective of narrowing the income gap between the wealthy and the poor. This is particularly true in developing countries. Further, the governments in developing countries need to effectively manage the degree of socioeconomic pressure that could distract them from implementing social and economic policies to eradicate poverty and raise the income level of the poor segment of society. © 2018, Technical University of Liberec. All rights reserved.

The Quality of Bureaucracy and Public Sector Performance. Albania’s Case.

The public sector performance is increasingly present in research literature. Considered as a result of a complex public management process, it provides the feedback gained through new public decisions that lead towards a performance improvement. The perspective of direct and mutual correlations and determinations between the public sector performance and the quality of bureaucracy is endorsed by studies as well as analyses of important international institutions. Albania is relevant to this point of view when considering the changes recorded in the administrative and public sector reforms. The country’s status related to the European Union represents the most relevant perspective for the current research. The approach of this paper finds its basis in the studies of Evans and Rauch (1999), and other pertinent studies, determining the instruments of evaluating the quality of bureaucracy. The result of this study refers to determining the relation between the quality of bureaucracy and public sector performance. La performance du secteur public est de plus en plus presente dans la litterature. Considere comme un resultat d'un processus complexe de gestion publique, il fournit le feedback obtenu grâce a de nouvelles decisions publiques qui menent vers une amelioration de la performance. La perspective des correlations mutuelles et des decisions entre la performance du secteur public et la qualite de la bureaucratie est appuye par des etudes ainsi que des analyses des institutions internationales importantes. L'Albanie est pertinente a ce point de vue pour les changement enregistrees dans les services administratifs et les reformes du secteur public. Le statut du pays lie a l'Union Europeenne represente le point de vue la plus pertinente pour la recherche actuelle. L'approche de cet etude trouve son fondement dans l'etude de Evans et Rauch (1999), et d'autres etudes pertinentes, determinant les instruments d'evaluation de la qualite de la bureaucratie. Le resultat de cette etude fait reference a la determination des relations entre la qualite de la bureaucratie et la performance du secteur public.

Does Policy Instability Matter for International Equity Markets?

AbstractWe test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality of bureaucracy (BURLMH). Both factors are significantly and positively related to equity returns and the BURLMH factor carries a monthly risk premium of 65 basis points. A country with weaker economic and institutional conditions has more risk exposure to the BURLMH factor whereas a country with high democracy has more risk exposure to the GOVLMH factor. Overall, our study reveals the importance and complexity of policy risk in international equity markets.

CORRUPTION AND INNOVATION: LINEAR AND NONLINEAR INVESTIGATIONS OF OECD COUNTRIES

Employing annual data over the period 1996–2013 for 29 OECD countries, this paper explores the impact of corruption on domestic innovative activity, measured by the number of patent and trademark applications, via a linear panel fixed effect model and a nonlinear panel smooth transition regression with all lagged explanatory variables as instrumental variables and under the consideration of potential endogeneity biases. The results indicate several important findings. First, there exists a strong threshold effect between the control of corruption and levels of innovative activity across nations. Second, we note that corruption only has a substantial positive impact on innovation when it is over the threshold level, but not when a country has a seriously corrupt government with low bureaucratic quality, no matter for patent or trademark applications. Hence, heterogeneous beliefs about low transition speed show that OECD countries may not take actions instantly and identically to pursue better bureaucratic quality. Finally, we discover that an improvement over corruption presents greater impacts on patent applications than on trademark applications. Taken together, we confirm that corruption plays a fundamental role in determining innovation activities in OECD countries, offering meaningful policy implications for those policymakers and industries in accordance with our findings.

Transitions between Growth Episodes: Do Institutions Matter and Do Some Institutions Matter More?

This paper examines the institutional and political determinants of the timing of growth episodes. We extend the earlier literature on the determinants of the onset of growth accelerations and decelerations by providing a more generalised approach to understanding growth episode transitions. We differentiate between six types of growth episodes – from growth collapses (where the episode specific growth rate, g, is -2 per year), to negative growth (g between -2 and 0), stagnation (g between 0 and 2), stable growth (g between 2 and 4), moderate growth (g between 4 and 6), and rapid growth (g over 6). Using multinomial logit models, in the context of a panel dataset of 125 countries from 1984 to 2010, we examine the likelihood of switching from one growth episode to another growth episode. We find that though bureaucracy quality has a positive effect while switching from negative growth episodes to positive growth episodes, it does not matter in most of the cases of switching from stable or moderate positive growth episodes to rapid positive growth episodes. Both contract viability and democratisation can explain the switching from negative growth episodes to positive growth episodes. Contract viability and democracy can also explain the movements from lower positive growth episodes to higher positive growth episodes. However, while contract viability is important for moving from stable or moderate positive growth episodes to rapid growth episodes, democracy is not important in explaining such switches. This suggests that while better economic and political institutions matter in taking a country from growth collapses to stable growth, economic institutions matter more than the political institutions for the transition from stable growth to rapid growth.

Economic Crisis, Bureaucratic Quality and Democratic Breakdown

Why do economic crises sometimes lead to democratic breakdown and sometimes not? To answer this question, we bring in a new conditioning factor. We propose that bureaucracies of higher quality – implying more competent, efficient and autonomous employees – to a greater extent shield the masses from impoverishment and unjust distribution of resources. This dampens anti-regime mass mobilization, which decreases elite incentives and opportunities for toppling the democratic regime. Statistical analyses of democracies globally from 1903 to 2010 corroborate that the impact of economic crises on the risk of democratic breakdown is suppressed when democracies have a bureaucracy of higher quality. The results are robust to alternative model specifications, including a battery of ‘good governance’ indicators. The effect of bureaucratic quality is not driven by bureaucracies’ ability to hinder crisis onset or shorten crisis duration but rather their ability to decrease domestic upheavals during crises.

International agreement design and the moderating role of domestic bureaucratic quality

Much of international cooperation research has long assumed that building and deepening (i.e. institutionalizing) international agreements can substitute for weak domestic bureaucratic capacity when it comes to promoting cooperative policies between countries. Qualifying this assumption, we argue that domestic bureaucracies are a key piece of international cooperation: the cooperation-inducing effect of international institutions is conditional on the quality of domestic bureaucracies. We examine this relationship in the context of the politics of interstate cooperation over transboundary rivers, an important test case given concerns about looming water conflict in the face of increasing water scarcity. Using data on freshwater-related events, 1984–2006, on the level of institutionalization of river treaties, and on the quality of domestic bureaucracy, we find that domestic bureaucracies moderate the ability of international institutions to elicit cooperative interstate behavior. The finding is robust to a multitude of specifications and provides important implications for institutional research and policy approaches to cooperation problems beyond freshwater.

Impact of institutions on emerging European high-growth firms

PurposeBased on the multi-faceted nature of high-growth firms (HGFs) and the significant investments by governments to make the business environment more conducive to firm growth, the effects of changing institutions impacting on HGFs has not been explored in any great detail. While the authors have a very clear understanding of the spatial variations of HGFs and their firm characteristics in various advanced countries, the authors are lacking such insights for emerging countries. The paper aims to discuss these issues.Design/methodology/approachGiven the growth prospects and economic reforms, the authors chose emerging Central and Eastern European (CEE) countries as the research context. Utilising a cross-country panel data set spanning 11 countries, the authors investigate the share of HGFs across these countries and further examine how changes in institutions impact firms to become HGFs. The authors frame the arguments around three institutional dimensions, namely corruption, investment climate and bureaucratic quality.FindingsThe findings suggest that the rates of HGFs are significantly higher in emerging CEE countries as compared with those in developed countries. Second, the results show that an improvement in a country’s institutional environment impacts positively on the likelihood of firms becoming HGFs. Among the three measures of institutions, bureaucratic quality seems to have the largest positive impact as compared with corruption and investment climate.Originality/valueThe authors contribute to the literature by presenting the share of HGF across 11 emerging CEE countries and estimating how changes in institutions impact on firms becoming HGFs for the period 2000-2013.

Does Meritocracy Lead to Bureaucratic Quality? Revisiting the Experience of Prussia and Imperial and Weimar Germany

How do state bureaucracies become high-quality organizations? Leading comparative politics studies assume that bureaucratic quality is forged by the introduction of meritocratic personnel systems because meritocracies, in contrast to politicized bureaucracies, select the most competent applicants for the jobs at hand. However, in line with principal-agent theory I propose that without a certain level of responsiveness of bureaucrats to the government in place and its policies, the positive consequences of meritocracy for bureaucratic quality are drastically reduced. Meritocracy is likewise essential to bureaucratic quality but, given that it demands some bureaucratic autonomy, meritocracy also creates a control problem. To study the consequences of meritocracy for bureaucratic quality, I revisit bureaucratic developments in the paradigmatically important historical cases of Prussia as well as Imperial and Weimar Germany. Based on extant scholarship of Prussian and German bureaucratic history, the analysis shows that bureaucratic quality varies over time with responsiveness even when meritocraticness is constant at high and low levels, and that governments knowing this hesitate to adopt meritocratic systems despite their advantages if they believe the bureaucracy will be unresponsive. Studying Prussia and Germany historically helps distinguish between the consequences for bureaucratic quality of meritocracy from those of responsiveness. On this basis, I identify where comparative politics studies may benefit from adding, in a comparative historical perspective, responsiveness to the explanation of bureaucratic quality.

PUBLIC EXPENDITURES AND GROWTH IN A MONETARY UNION: THE CASE OF WAEMU

The focus of the paper is on how public spending volume, composition (current versus capital) and quality are linked to economic growth in lower-income countries that are members of a monetary union. We specifically investigate the case of the West Africa Economic and Monetary Union (WAEMU) countries, which have fluctuating growth rates and relatively low-income levels compared to other parts of the world. The empirical analysis covers the period 2000-2013. The results indicate that total public spending has a significant impact on growth. While the impact of the capital component is positive and statistically significant, the effect of the current component tends to be negative, but not significant. When the capital component is further split into two: public fixed capital investment and public other capital expenditures, defined as total public capital expenditure minus public fixed capital investment, the results show that not only physical capital formation but also human capital spending is important for growth. While the volatility measure for public investment has a clear negative and statistically significant impact on growth, the quality of public fixed investment has a positive impact. The findings also indicate that fiscal deficits have not been an important constraint to the effectiveness of government spending on growth, reflecting the fiscal discipline achieved in the union. On the other hand, the debt-to-GDP ratio clearly shows a significant negative impact on growth, indicating the risk associated with debt distress. Total fiscal revenue has a significant and positive effect on growth, most likely indicating relatively low levels of fiscal revenues to GDP ratios, partially boosted by natural resources, coupled with grants. In each regression specification, it is observed that the contributions of both trade openness and private investment on growth are positive and significant. The results also indicate that the quality of institutions, measured by an index of bureaucracy quality, is critical to enhancing the positive effect of public spending on growth. The findings are robust to different regression methodologies, as well as the inclusion of short- and medium-term data.

Dynamic analysis of bureaucratic quality and occupational choice

This paper analyzes the interdependency between bureaucratic quality and economic development. Capital accumulation changes bureaucratic quality through occupational choice in two cases. In the first case, the bureaucratic quality improves through economic development, and, in the second case, bureaucratic quality worsens or remains low. In both cases, good quality of bureaucracy cannot be realized without economic development. Workers and bureaucrats earn a higher income under a low-quality bureaucracy. A change in quality from low to high expands income inequality between unskilled and skilled individuals and contracts inequality among skilled individuals.

The determinants of Turkey's exports to Islamic countries: The impact of political risks

ABSTRACTUsing the traditional gravity model, this paper aims to analyze the determinants of Turkish exports to 43 Islamic Development Bank member countries for the period from 1996 to 2015. The paper specifically investigates the effects of 12 political risk measures (bureaucracy quality, corruption, democratic accountability, government stability, internal and external conflict, investment profile, law and order, military in politics, religious and ethnic tensions, and socioeconomic conditions) in the importing countries on the total volume of exports of Turkey. After implementing various robustness checks, the paper finds that the government instability in the importing countries is negatively associated with the Turkish exports.

In search of spatial interdependence of US outbound FDI in the MENA region

AbstractThe paper investigates the spatial interdependence of US MNE investments in the MENA region. Given the variations in resource endowments, governance structures and degree of infrastructure availability in MENA countries, one would expect these variables to affect an MNE's choice of FDI location. We do find that domestic non‐spatial factors such as own country inflation and governance measured by bureaucratic quality as well as infrastructure affect a host country's inward FDI. We also found that only one measure of natural resource endowment; that is, oil and gas exports were instrumental in attracting FDI. This non‐spatial result is generally robust and invariant to the two methodologies employed in this study, that is the spatially autoregressive (SAR) model and the spatial Durbin model (SDM). We found that neighbouring countries’ infrastructure availability measured either by “electricity used” or “energy used” affected FDI inflows in a host country. However, this spatial impact was found only in the SDM model. The spatial effects of neighbouring countries’ economic and political conditions and resource endowments were, however, not observed on a host country's inward FDI. The insignificance of both the surrounding market potential and the spatially weighted FDI suggests a purely horizontal motive of MNE investments in the MENA region.

State Capacity and Health Outcomes: Comparing Argentina’s and Chile’s Reduction of Infant and Maternal Mortality, 1960–2013

Summary There is substantial quantitative evidence linking higher state capacity to better health outcomes, but scant attention has been paid to the specific mechanisms through which this causal influence operates. The problem is compounded by the considerable diversity of ways in which the influence of the state on development outcomes has been conceptualized, making it hard for practitioners to extract policy lessons from this literature. In this study, I seek to help to address both of these problems through a historical-comparative examination of the ways in which state capacity affected infant and maternal mortality reduction in Argentina and Chile over the last half century. I show that Chile’s greater investment in health-specific state capacities was behind the remarkable historical “reversal of fortune” between these two countries in terms of infant and maternal mortality levels from 1960 to the present, as well as behind Chile’s notorious reduction in the territorial inequality of these outcomes. I show the key difference between the two countries was the quality, reach, and homogeneity of their respective public health systems. From a theoretical standpoint, I argue that the notions of bureaucratic quality and infrastructural power are both necessary and complementary perspectives through which to conceptualize state capacity and understand its causal influence over health and other desirable developmental outcomes. In turn, this suggests that a useful way to specify calls for better “governance” and to achieve better long-run health performance may be to invest in the public health system’s technical (bureaucratic) autonomy and in its system-wide planning and coordination capacities.

Political Instability, Corruption, and Economic Growth: Evidence from a Panel of OECD Countries

Keywords: Political Instability, Corruption, Economic Growth, Political Conflict1.IntroductionThe major aim of this paper is to examine the empirical relations between economic growth and a broad group of political instability factors including corruption, government instability, internal and external conflicts, religious and ethnic tensions, democratic accountability and bureaucracy quality. Moreover, one of the main objectives of our paper is to explore the effects of serious problems such as political instability and corruption on economic growth for Organisation for Economic Co-operation and Development (OECD) countries during the period 1984-2012. Thus, most of the countries in our sample are developed countries of the world.The main contribution and distinctive characteristic of this article is to focus not only on the relationship between political stability and economic growth, but also on the relations between some specific categories of political instability and economic growth. It is generally accepted that corruption is an element of political instability as well. In this paper, we employ system GMM estimator for linear dynamic panel data models in order to overcome a potential endogeneity problem.The relationship between political instability and economic growth has been an issue of concern for long. Political instability is one of the conventional themes of the modern political economy theory. Modern theory of political economy suggests that political stability plays a significant role in economic growth of a country. Thus, an unstable political system could seriously hinder economic growth. Within the theoretical framework of modern political economy, a government is considered to be inefficient if policy objectives vary over a short period of time. Thus, coalition governments are a serious threat and to be more prone to the political stability. Moreover, modern political economy theory emphasizes that political instability also affects the level of economic growth in the country as the rates of economic growth are correlated with persistent policies of government and how government perform these policies (Barro, 2013).On the other hand, corruption is a widespread phenomenon in several countries around the world, which are regarded by economists as seriously harmful to economic growth (Aisen & Veiga, 2011). The majority of academic research reveals that corruption impedes economic growth, creates political instability, weakens the state's capacity to tax, undermines spending programs, increases the cost and lowers the quality of public investment (IMF, 2016). Some economists consider that corruption can also have distributional consequences. Corruption increases income inequality and poverty through lower economic growth, biased tax systems favoring the rich, and lower social spending (Gupta, Davoodi & Alonso-Terme, 2002). However, some researchers suggest that the impact of corruption on economic growth is related with factors such as the country's legal and institutional framework, quality of governance and political regime. Thus, in some highly regulated countries, corruption can compensate for red tape and institutional weaknesses and overcome the government failure in the economy (Campos, Dimova & Saleh, 2010). Since there is a large consensus that corruption hinders economic growth and increases socio-economic inequalities, international organizations such as the World Bank and OECD emphasize that corruption is among the greatest obstacles to economic and social development (OECD, 2013).The remaining part of this paper is organized as follows. Section 2 presents a brief literature review. Section 3 provides information about the data, empirical model, and empirical methodology. Section 4 contains empirical results. Section 5 includes a summary and concluding remarks.2.Brief Literature ReviewAlesina, Ozler, Roubini, & Swagel (1992) define political instability narrowly as the tendency of the change in cabinet either by constitutional or unconstitutional means. …

Urbanization, democracy, bureaucratic quality, and environmental degradation

The study examines the relationship between urbanization and environment degradation while controlling for political environment in 38 African countries over the period 1970–2011. Using panel cointegration and causality analyses, we find that urbanization, environmental degradation (CO2 emissions) and political economy variables (democracy and bureaucratic quality) are cointegrated. Second, democracy and bureaucratic quality are effective in reducing environmental degradation in the long-run. Third, there are positive bi-directional relationships between CO2 emissions and affluence and population as shown by panel vector autoregressive and impulse response functions. However, a negative uni-directional relationship runs from CO2 emissions to bureaucratic quality. These results suggest that political economy variables are important in explaining the relationship between urbanization and environmental degradation.