World Bank Governance Indicators Research Articles

How judicial efficiency impacts trade credit and doubtful receivables

Judicial efficiency has been widely identified as a factor that has an impact on credit markets and firms’ financial decisions. In this paper, we study the relationship between judicial efficiency and trade credit granted by firms to their customers, as well as how the judicial system influences the proportion of those credits that are deemed ‘doubtful’. We test our assumption by analysing a sample of 1526 listed, ‘non-financial’ firms located in countries in the eurozone, during the period 2011–2021. The proxies of judicial efficiency are the length of judicial proceedings and rule of law, obtained from the World Bank’s ‘Doing Business’ and the World Bank Governance Indicators (WGI) databases, respectively. The empirical findings confirm our hypotheses that efficient justice allows for increased supplier confidence when extending financing to their customers and reduces doubtful trade credit.

The Capital Structure Decisions of Banks: An Evidence From MENA Region

The study examines the significant factors affecting the capital structure decisions for banks’ in MENA region. An unbalanced panel data comprising of 132 banks operating in fifteen different countries of the MENA region from 2012 to 2017, data was extracted from Bank Scope resulting in 891 bank year observations. Macroeconomic indicators and institutional characteristics data has been taken from World Bank and World Bank governance indicators database and financial freedom data has been collected from heritage foundation. We use the two-step system Generalized Method of Moments (GMM) to explore the relationship between dependent and explanatory variables. The regression outcome between profitability and leverage shows a negative and significant relationship. No significant association between tangibility and leverage is found. Earnings volatility is negatively and significantly related to leverage. The relationship between growth and leverage is negative and significant. Macroeconomic indicators GDP growth and inflation show a positive relationship with leverage. Finally, the institutional factors, that is, government effectiveness, political stability, and rule of law have positive association with leverage. The study results will lend a hand to bank managers to make value-maximizing financing decisions to achieve an optimal capital structure. It will also help the policymakers to articulate an effective regulatory framework in the region. As per our knowledge, this is the first study to explore the determining factors of capital structure for banks operating in the MENA region. Moreover, the findings from MENA region banks could also support the comparative study with other regional blocks.

Debt Maturity and Institutions: Does Creditor Protection Matter?

This study aims to investigate the relationship between creditor protection and the debt maturity structure of corporations in the Gulf Cooperation Council (GCC) countries. The GCC countries enjoy large GDPs, growing capital markets, especially the Islamic bonds (Sukuk) market, and negligible tax environments. Nonetheless, the GCC countries’ financial systems are still dominated by banks, and their private investments are held by concentrated investors. The study utilizes firm-level financial data and country-level institutional data obtained from the World Bank Governance Indicators and Doing Business databases and applies the two-stage least square estimator to test its hypotheses. The findings indicate that stronger regulatory effectiveness is associated with long debt maturities, while better creditor protection is associated with short debt maturities. The latter finding suggests that managers and owners have incentives to utilize short-term debt in economies characterized by stronger liquidation and insolvency rules to avoid the loss of control in the case of a firm default. This finding has policy implications in terms of the importance of considering the dual influence of institutional reforms on the supply of and demand for long-term capital.

Does corruption attract foreign direct investment inflows? Evidence from Tanzania

Corruption remains a prominent institutional barrier that hampers foreign direct investment (FDI) inflow in developing countries. However, the specific impact of corruption on FDI inflows in Tanzania remains largely unexplored. This research aims to contribute to the existing body of knowledge by examining the consequences of corruption on FDI inflows in Tanzania between 1996 and 2021. The analysis utilizes time series institutional data obtained from the World Bank governance indicators and FDI inflow data from the Bank of Tanzania (BOT). Given the consideration of multiple variables, a multiple regression model is employed to analyze the data. Unit root tests such as the expanded Dickey-Fuller and Johansen cointegration tests are utilised to assess whether the variables are cointegrated and whether the data exhibits stationarity or nonstationarity. The findings of this study unequivocally demonstrate that corruption (CC) has a significant adverse effect on both short-term and long-term FDI inflows. The data from 1996 to 2021 consistently indicate a noteworthy influence of corruption (CC) on FDI inflows. Consequently, this research recommends concerted efforts to combat corruption in order to improve the investment climate and attract foreign investors.

The Impact of COVID-19 Outbreak on CO2 Emissions in the Ten Countries with the Highest Carbon Dioxide Emissions.

The environmental pollution during the COVID-19 crisis has declined dramatically due to quarantines that have severely reduced transport and industry but has had little effect on the steady rise in CO2 concentrations in the atmosphere. Through the Paris Agreement, countries are working to reduce the emissions of these pollutants, for example, by burning fossil fuels. These greenhouse gases trap heat near the earth's surface and raise the temperature. This global warming threatens global food resources. In times of corona crisis and environmental pollution, especially in countries with the highest CO2 emissions, governance is a key factor that explains the poor economic, social, and environmental performance of many countries. Governance plays an important role in controlling these crises. In this study, the World Bank's governance indicators have been used to examine the relationship between governance and economic performance and its impact on CO2 emissions during the COVID-19 outbreak period. Also, the Tobit panel model with a limited-dependent model from 2011 to 2020 has been used. Several economic factors and governance variables are also considered. Given the negative relationship between governance and CO2 emissions during the COVID-19 outbreak, the role of governance in reducing environmental pollution is emphasized, and it is shown that policymakers can take appropriate measures by implementing good governance and enforcing the right laws to control the corona epidemic and also reduce carbon emissions in the long run.

Foreign Assistance, Institutional Quality and Economic Growth in Selected Sub-Saharan African Countries: 1990 – 2021

This study adopts the Augmented Mean Group (AMG) estimator to analyse the impact of institutional quality and foreign assistance on economic growth in Sub-Saharan African countries, using time series data sourced from the World Bank Development Indicators (WDI) and World Bank Governance Indicators (WGI) for the period 1990 to 2021. The study went a step further to determine whether there is a significant interactive development effect of foreign assistance and institutional quality in sub-Saharan African countries. The results show that foreign assistance has a positive conditional marginal effect on per-capita GDP, institutional quality has a positive conditional marginal impact on per-capita GDP and their interaction is also positive. The results are all statistically significant at 10% level of significance. Thus, foreign assistance and good quality institutions improves economic growth. This does not imply that; sub-Saharan African region should heavily rely on foreign assistance, without putting in place specific developmental efforts. Thus, it is opined that policymakers should regulate the allocation of foreign assistance and improve the quality of institutions. In doing so, the production capacity of the region would increase and the region would attract huge amount of foreign direct investment (FDI). Consequently, there would be a distinction between the amount of foreign assistance needed to lessen poverty and the levels of foreign assistance required to achieve economic growth. Keywords: Foreign Assistance; economic growth; AMG Estimator, CCEMG Estimator, Institutional Quality and Sub-Saharan Africa DOI: 10.7176/JESD/14-8-07 Publication date: April 30 th 2023

Economic and Political Risk Aversions to Illicit Financial Flows: A Rethink of the Portfolio Choice Factors

The study examines the long-term causal relationship between public debt, governance quality, and illicit financial flows in sub-Saharan Africa. Annual time series data were gathered from the World Bank Governance Indicators, International Monetary Fund Economic Outlook, and Global Financial Integrity from 2005 to 2014. The approach adopted in the study is in the tradition of the portfolio choice framework of tax evasion, rooted in the investment theory of capital flight. The study finds that there is a negative and statistically significant long-run relationship between governance quality and illicit financial flows. The results also show a negative and statistically insignificant relationship between public debt and illicit financial flows. The findings suggest that weak institutional oversight, poor regulatory quality, corruption, and political crises are important determinants of illicit financial outflows in the region. It concludes that governments need to improve the transparency of financial transactions, including the beneficial ownership of corporate structures and tax information. The results also indicate the need to strengthen institutions such as customs, anti-corruption, and other law enforcement agencies to detect intentional trade misinvoicing as tax evaders exploit loopholes in tax administration peculiar to developing countries. The study is timely as resources are critically needed to rebuild economies in view of the global COVID-19 outbreak and its deleterious effects on low-income countries. The study is also relevant for policymakers as it presents pointers to the factors that proliferate illicit capital outflows from the region.

The burden of malaria in sub-Saharan Africa and its association with development assistance for health and governance: An exploration of the GBD 2019 study

ABSTRACT Even with a reduced burden of malaria in sub-Saharan Africa (SSA), differences remain in the rate of change among countries and sub-regions. We used data from the Global Burden of Disease Study 2019 to establish the relationship between Development Assistance for Health (DAH) and governance and trends in malaria burden in SSA. The trend was estimated using the Joinpoint regression program and the Institute of Health Metrics and Evaluation’s DAH database, and World Bank Governance Indicators to analyze the DAH and governance respectively from 2000 to 2017 and used two-way fixed effects to establish their association with the trend in the period. The findings showed decreases in SSA’s age-standardised rates for disability-adjusted life years (ASDR) (−47% (95% uncertainty interval (UI) −69% to −14%)), deaths (−38% (95% UI −65% to −3%)), incidence (−35% (95% UI −44% to −25%)), and prevalence (−34% (95% UI −43% to −24%)). Decreases in ASDR were associated with increases in DAH (β −134.18, standard error (SE) 27.26) and governance scores (β −246.19, SE 39.13). The association between reductions in malaria burden and increases in DAH and in governance scores shows the need for accelerated funding of malaria programs and advocacy for better disease governance in malaria-endemic countries. Abbreviations: APC: Annual percentage change; ASDR: Age-standardised disability-adjusted life-year rate; ASIR: Age-standardised incidence rate; ASIR: Age-standardised incidence rate; ASMR: Age-standardised mortality rate; CSSA: Central sub-Saharan Africa; DAH: Development Assistance for Health; DALYs: Disability-adjusted life years; ESSA: Eastern sub-Saharan Africa; GBD: Global burden of disease; GHDx Global Health Data Exchange; IHME: Institute of Health Metrics and Evaluation; SDGs: Sustainable Development Goals; SSA: Sub-Saharan Africa; SSSA: Southern sub-Saharan Africa; UNSD: United Nations Statistics Division; USD: United States dollars; WGI: World Bank Governance Indicators; WHO: World Health Organization; WSSA: Western sub-Saharan Africa

Governance, FDI and tourism in top 10 tourist destinations in Africa

The study examines the impact of foreign direct investment (FDI) and governance quality on tourism demand in selected 10 African countries. We further examine the role of governance quality in the FDI-tourism demand nexus. The study employs panel data of 10 most preferred tourist countries in Africa over a period of 1995–2019. These data are sourced from World Bank Development Indicators and World Bank Governance Indicators’ Database. Panel unit root tests, Johanson-Fisher Cointegration Test and panel cointegrating regression are employed. The results reveal that there is a long run relationship among the variables and FDI has a positive and significant impact on tourism. Similarly, the quality of governance improves the level of tourism arrivals. In addition, quality governance plays a significant role in the tourism sector of the selected countries in Africa. The policy implications are as well discussed.

Institutions and inward foreign direct investment in the primary sectors

PurposeWell-functioning institutions are repeatedly claimed to attract foreign direct investment (FDI) by reducing the costs and uncertainty of economic activity. Nonetheless, it has been argued that institutions may matter less for FDI in the primary sector. This study aims to theoretically and empirically investigate the role of institutions for attracting FDI in agricultural and in extractive activities.Design/methodology/approachThis study uses worldwide country and sector-level data on inward FDI for the period 1996–2007. The key independent variables, property rights protection, corruption and democracy, are measured using World Bank Governance Indicators and Polity IV as data sources. Fixed effect panel regression, Tobit regression and generalized method of moments are used for data analysis.FindingsThe authors corroborate the importance of institutions for aggregate FDI. Disaggregating by primary subsector, the authors find that agricultural FDI, like aggregate FDI, is attracted by institutional features such as rule of law and property rights protection and democracy, whereas extractive FDI is not. The authors also find some evidence that corruption deters FDI in both primary subsectors.Originality/valueThe authors take a first step toward linking the largely empirical institutions-FDI literature more closely with the economics-based theoretical discussions of FDI risk grounded on a property rights approach, to discuss issues such as effective control rights over investments, which may vary between sectors. The authors also explore a novel idea that extractive activities may be less sensitive to institutions because the time horizon is limited by the depletion of the resource, resulting in an inherently relatively short-term commitment to a host-country location.

Currency Union and Regional Trade Integrations in West Africa: The Role of Institutional Quality

This study investigates the effect of currency union on intra-regional trade integrations in West Africa. The empirical analysis also examines the interaction effect of institutional quality on currency union-trade flows nexus in the West African region over the period of 1996 - 2019.The study employs a Driscoll-Kraay standard error estimator technique on data obtained from the IMF direction of trade statistics and World Bank governance indicators. The study findings suggest that all the gravity variables (Gross domestic product, population, and distance) are in line with a priori expectations; currency union dummy produced a positive association with intra-regional trade integrations; real effective exchange rate appreciation boosts trade performance, and the interaction of currency union and institutional quality produced a positive impact on intra-regional trade flows among the countries in the West African region. Among the disaggregated institutional quality index, the rule of law and political stability have a significant impact on trade flows. The rule of law influenced trade flows positively, while political stability influenced trade flows negatively. The study concludes that the Rose effect of a common currency on trade exists in West Africa and that the level of institutional quality also subscribes to the currency union trade flows relationship.

Granger Causal Nexus between Good Public Governance and Unemployment: Evidence from Cross-Country Panel Data Investigation

The purpose of this paper is to investigate the causality between good public governance captured through six World Bank governance indicators and unemployment rate (unemployment as % of the total labour force) as a clear indicator of labour market performance. Although some previous papers have empirically demonstrated the casual nexus between country-level governance and economic development, this study investigates the relation of causality between public governance and the labour market. By employing Granger non-causality tests, we tested two hypotheses with regard to this nexus. We argue that bidirectional Granger causality is predominant for the relation of country-level governance and unemployment. Finally, our paper offers a complex quantitative analysis of the causal nexus between public governance quality and one of the most known labour market activity indicators for an extended panel dataset of countries worldwide for 10 years.

Institutional quality and economic performance in South Asia

The study empirically examines the impact of institutional quality on economic performance in South Asia for the period 2002 to 2016. The study employed six World Bank Governance indicators and constructed a composite governance index to measure institutional quality. Per capita real GDP is taken as a measure of economic performance. The study uses conventional determinants of growth such as labor supply and physical capital stocks. Fixed effects regression and Fully Modified Ordinary Least Square (FMOLS) methods are employed to examine the long‐run equilibrium relationship. Dumitrescu‐Hurlin (2012) panel causality test is used as a short‐run diagnostics test for the long‐run relationship. The empirical results reveal institutional quality has a positive impact on economic performance in the long‐run whereas, governance indicators such as control of corruption, government effectiveness and political stability are vital for better economic performance in South Asian countries. The short‐run diagnostics results reveal that institutional quality has no impact on economic performance. On the other side, economic performance helps to improve intuitional quality in the short‐run. Hence, in the short‐run South Asian countries should focus on non‐good governance indicators such as effective taxation, health, education, infrastructure and skill development to achieve good governance and better economic outcome in the long‐run.

Institutional reforms for economic growth in the Western Balkan countries

The paper presents an empirical analysis of the impact of institutional reform policies and institutional quality on the economic growth of five Western Balkan countries (WB countries: Serbia, Montenegro, Bosnia and Herzegovina, Northern Macedonia and Albania) in the period 2006-2016. It was developed its own model of quantification concerning the impact of the most important indicators of the quality of institutions on the economic growth of these countries, which are in a delayed phase of transition and at some stage in the EU accession process. Achieving high and stable rates of economic growth for WB countries becomes the ultimate prerequisite for completing the EU transition and accession process. In order to improve growth dynamics, among other things, it is necessary to identify key drivers of growth and to model appropriate growth and development policies based on the results obtained. In the paper, WB countries were viewed as a whole. By empirically testing the impact of individual quality indicators of institutions on economic growth, according to the World Bank Governance Indicators methodology by using panel data multiple linear regression analysis, the largest statistically significant and positive impact came from the Government Effectiveness and Regulatory Quality variable. The intensity of the impact of the Control of Corruption and Rule of Law variable on GDP per capita is slightly weaker, but it is also very pronounced. In this respect, the empirical results obtained can be a useful framework for modeling the development policies of WB countries. They represent an important guide for policy makers to implement measures aimed at improving the quality of institutions and at the same time modeling economic growth policies.

Governance, maternal well-being and early childhood caries in 3\u20135-year-old children

BackgroundThis study assessed the direct, indirect and total effect of distal – political - risk indicators (affecting populations), and proximal risk indicators (affecting women) on the global prevalence of early childhood caries (ECC) in 3–5 year old children.MethodsData on global ECC prevalence were obtained from a prior study. Data for distal risk indicators (voice and accountability; political stability/absence of terrorism; control of corruption) were obtained from the World Bank Governance indicators, 2016. Data for proximal risk indicators (women’s opportunity for leadership; percentage of female legislators, top officials and managers; basic employability status of women; ability of women to afford time off work to care for newborns; gross national income (GNI) per capita for females) were derived from the Human Development Index, 2016. Associations between variables were assessed with path analysis.ResultsVoice and accountability (β = − 0.60) and GNI per capita for females (β = − 0.33) were directly associated with a lower ECC prevalence. Political stability/absence of terrorism (β =0.40) and higher percentage of female legislators, senior officials and managers (β = 0.18) were directly associated with a higher ECC prevalence. Control of corruption (β = − 0.23) was indirectly associated with a lower ECC prevalence. Voice and accountability (β = 0.12) was indirectly associated with a higher ECC prevalence. Overall, voice and accountability (β = − 0.49), political stability/absence of terrorism (β = 0.34) and higher female GNI (β = − 0.33) had the greatest effects on ECC prevalence.ConclusionDistal risk indicators may have a stronger impact on ECC prevalence than do proximal risk indicators.. Approaches to control ECC may need to include political reforms.

The Nexus Between Good Governance Indicators And Human Development Index In Africa: An Econometric Analysis

This study examines the association between good governance indicators and the human development index in Africa. Accordingly, it uses the panel data of 49 African countries from 2000-2018 on the six World Bank governance indicators (WGIs) and the UNDP aggregate human development index (HDI). The data are analyzed using descriptive statistics and panel regression analysis. The descriptive statistical analysis shows that most of the countries that are scoring high in the governance indicators are also scoring high in the human development index. It also indicates that Africa's average score in all governance indicators from 2000-2018 ranges between 36.2 % and 40.4%, while the score for human development was 50.8%. Using a one-year moving average, the calculated improvement rates for the eighteen years in all the governance and human development indicators were meager. The finding from the panel regression analysis attests only the three good governance indicators - the rule of law, regulatory quality, and political stability and absence of violence - are significantly and directly associated with the human development index. The finding implies that policy makers in African countries should give emphasis on these three good governance indicators to augment their human development effort.

Does Governance Matter? Evidence from BRICS

The role of governance is widely debated in the process of economic development. The current study focuses on examining the growth and the governance relationship for BRICS countries utilizing the annual balanced panel data for the period spanning from 1997 to 2015. Per capita real GDP growth is taken as a proxy for economic growth and six World Bank Governance Indicators are used as a measure of governance. Pedroni (2004, Econometric Theory, 20, 597–625) panel cointegration technique and fully modified ordinary least square (FMOLS) are used to look into a long-run equilibrium relationship. Dumitrescu and Hurlin’s (2012, Economic Modelling, 29, 1450–1460) panel causality test is used as a short-run diagnostics test for long-run equilibrium relationship. The major findings of the study show that growth and governance are complementary to each other. In the long run, governance promotes and sustains high-income growth, whereas, in the short run, minimum economic development is required for better functioning of institutions.

Corruption perception, institutional quality and performance of listed companies in Nigeria

We examine the effect of corruption perception and institutional quality on the performance of firms based on the extracted data for 135 listed companies in Nigeria with timeframe 2013–2017. We first use the Transparency International Corruption Perception Index for the baseline analysis, which evaluates the public officials and politicians’ corruption practices. To capture institutional quality, which depicts the level of law enforcement to curb corruptive practices of the public officials, we use the first component via Principle Component Analysis of six governance indicators extracted from World Bank Governance Indicators. We then use the Generalized Method of Moment (GMM) for the analysis. We find that corruption is negatively related to the market value (TobinQ) and accounting value performance (ROA). Similarly, institutional quality is negatively related to TobinQ and ROA. The results suggest that corruption and institutional quality weaken the market and accounting performance firms in Nigeria. We further compare the extent of corruption and institutional quality on performance between financial and non-financial institution. We find that both corruption and weak institutional environment tend to impair the market and accounting-based performance of non-financial firms, which could be traced to the less regulatory body in such institution compared to the financial institution. We suggest that Nigeria needs more effective and strong mechanisms proactive to curb corruption practices and weak institutional quality.

Impact of Institutional Quality on Educational Attainment: The Case of Low-Income SSA Countries

Education produces many social, political and economic outcomes including improved cognitive competences, higher wages, better health and enhanced economic status. Nations ensure the development of their population by the use of educational intervention. Despite the documented empirical correlations of education attained, there have been scanty researches exploring the impact of institutional quality in low-income SSA countries. The problem facing SSA can be ascertained in the area of weak institutions which leads to poor level of educational attainment and low level of life expectancy which have become the focus of the development agenda in the world as a whole and developing countries in general. The objective of this study is to evaluate the relationship between institutional quality and educational attainment in low-income SSA countries from 2005 to 2013. The research used secondary data sourced from World Bank governance indicators, Transparency International and Heritage Foundation. The analysis was divided into panel data using the fixed effects method (FEM) and generalized method of moments (GMM). Both the panel data analysis and the generalized method of moments of institutional quality and educational attainment indicated that most of the countries investigated exhibits mixed performance in institutional quality. The study recommends policies to reduce corruption in all levels of economic activities. In addition, rule of law need to be strengthened and the educational sector should be refined to train manpower in all aspect of human activities in the region especially the low-income countries in SSA countries.

Foreign Aid and Corruption: Clarifying Murky Empirical Conclusions

This study considers foreign aid flow by sector in which the aid is directed and then estimates its impact on corruption in order to clarify the specific direction of aid flow that triggers (or does not trigger) corrupt practices. Data are from the Organisation for Economic Co-operation and Development database, Freedom House dataset, and the World Bank Governance Indicators. The dynamic system GMM and quantile regressions (QR) were estimated for robust estimation and correction of endogeneity issues. We found that aid flows for the development of economic infrastructure, multi-sector and programme assistance were consistently reducing corruption. This result stands for both the entire sample and for the African countries (especially for countries at the 25th, 50th and 75th quintiles). Aid flows to social infrastructure and debt relief significantly induce corrupt practices in the sampled countries. These forms of aid only spur rent-seeking behaviour for countries at the lower quintiles of corruption. Two robust checks were estimated, including: (a) using an alternate explained variable—the corruption measure by Transparency International; and (b) correcting for endogeneity in the QR estimation by instrumenting the independent variables of interest with their first-lags. For both checks, the signs and significant values of the variables were consistent with the earlier estimation. JEL Codes: B20, F35, F50, O10, O55