World Governance Indicators Research Articles

Productivity, institutions, and market beliefs: three entrepreneurial interpretations

PurposeInspired by the debates among economists about the role of beliefs and informal institutions in economic development, the purpose of this paper is to derive and test different hypotheses about the ways beliefs about the market economy, institutions and policies, and productive entrepreneurship are intertwined.Design/methodology/approachThe paper derives from the literature three hypotheses unified around the idea of (political, cultural, and market) entrepreneurship. The paper then tests these hypotheses by running various country-level regressions intended to check the relationships between formal institutions and policies (measured by World Governance Indicators and by the Economic Freedom of the World index), productive entrepreneurship (measured by total factor productivity form the Penn World Table), and different kinds of market beliefs from the World Values Survey (WVS).FindingsThe sociological hypothesis says that more pro-market beliefs provide incentives for innovation by recognizing entrepreneurship as a dignifying activity. The political hypothesis says that people with more pro-market beliefs will demand, and therefore live with, more pro-market institutions and policies. The “Schumpeterian” hypothesis says that it is market institutions that make it possible for entrepreneurs to run against anti-market beliefs, and innovate. The results support the Schumpeterian hypothesis, mainly because market beliefs predict institutions and policies as well as productivity very poorly, while formal institutions and policies make a much better job of this.Originality/valueThe paper contrasts three different hypotheses concerned with the broader consequences of political, cultural, and market entrepreneurship and tests them by making use of the time structure of the observations found in the WVS.

Corruption and civic space: Contextual factors influencing EITI compliance

Market and government failures led to the formation of multi-stakeholder initiatives (MSIs) as an alternative governance structure. The Extractive Industries Transparency Initiative (EITI) is one of these. The impact assessments of EITI yield mixed results. The variation in impact may be attributed to the difference in compliance with the EITI Standard. The authors implemented an ordered logit regression analysis to analyze the relationship between contextual factors and countries’ level of EITI compliance. The authors used the 2013–2015 World Governance Indicators (WGIs) to represent the state of governance in member countries. The EITI International Secretariat’s quarterly assessment of countries’ compliance with the EITI safeguard requirements was used as a proxy for EITI compliance. The authors found statistically significant positive relationship between perception of political freedom and compliance with the safeguard requirements. This finding supports the importance of civic space in making MSIs effective. The authors also found that states that are perceived to be more corrupt, ineffective and has weak rule of law are more likely to comply with the EITI requirements. The findings on freedom and corruption are consistent across models. Countries maybe complying with EITI to improve their reputation and benefit from incentives a compliance status in EITI bring.

Volatile Places, Volatile Times: Predicting Revolutionary Situations with Nations’ Governance and Fragility Indicators

The current study examines the predictive validity of the World Bank’s World Governance Indicators (WGI) and the Fund for Peace’s Fragile States Index (FSI) in identifying the location and timing of revolutionary situations in 26 countries that have popular mobilization movements within the last two decades. The results of case comparative analyses provide some empirical support for both the WGI and FSI measures in predicting the timing of revolutionary situations (i.e., the year preceding the onset of mass protest was often one of the most “fragile” time period in a nation’s pre-revolutionary history). However, these aggregate measures have low predictive value in identifying the between-nation differences in their relative risks of having a revolutionary situation (i.e., revolutionary nations are not necessarily countries with the lowest scores on measures of misgovernance and fragility). Possible explanations for these findings and limitations of the current study are discussed in terms of their implications for future research.

Global Trends in Mineral Commodities for Advanced Technologies

The U.S. Geological Survey National Minerals Information Center (NMIC) is the U.S. Government agency tasked with the collection, analysis, and dissemination of information on the production, consumption, import, export, and other measures of the flows of non-fuel mineral commodities of importance to the U.S. economy and national security. The NMIC and its agency predecessors have maintained a database of this information, collected and published annually, dating back to the beginning of the twentieth century. Time series analysis of annual information from the NMIC provides the opportunity to identify trends in the supply chains of the minerals and metals which are increasingly in demand for advanced technologies. The identification of trends in data for net import reliance, country concentration of production, global demand, price volatility, and other measures, when combined with world governance indicators, can be used to focus attention on individual mineral commodities where supply chain restrictions may develop. Specific examples for U.S. net import reliance, global tantalum primary mining, and mineral criticality screening are presented to illustrate the utility of time series analysis of trends in mineral commodity supply and demand, the types of data required, and the limitations of currently available information.

Macroeconomic and Political Determinants of Resource Nationalism

Resource nationalism is essentially mandatory government intervention in natural resources businesses by political or economic means in order to benefit the nation and the people. It is attacking the mining industry more and more rampantly by all kinds of means since the twenty-first century. Poor countries who count on a resource-led economic growth usually find themselves trapped into “resource curse”. The harmfulness of resource nationalism for investors is that one event can quickly escalate and lead to a chain of events which make projects commercially unavailable. In spite of historical and theoretical social investigations in the causes of resource nationalism, rare studies engaged in quantification of dominant parameters of it. The objective of this study is to find significant factors that dominate the occurrence of resource nationalism for important metal and energy resources producing countries and quantify their marginal effects. The study applies binary choice logit model for panel data using pooled method. One feature of the research is that binary data set of occurrence of resource nationalism are sorted out by authors referencing U.S. Geological Survey’s reports. The results indicate that high-technology export (% manufactured export), ores and metals exports (% merchandise exports), rule of law (world governance indicator), trade (% GDP), and natural resource rent except forest (% GDP ) dominant the occurrence of resource nationalism for high and upper middle income group countries; government effectiveness (world governance indicator), policy perception index (The Fraser Institute), high-technology export (% manufactured export), and mineral rent (% GDP) dominant the occurrence of resource nationalism for lower middle and low income countries. According to our model, probability of occurrence of resource nationalism in 90 countries are predicted. Top 10 risky countries in 2012 are estimated to be North Korea, India, Honduras, Indonesia, Kazakhstan, Burkina Faso, Mongolia, Cuba, Bolivia, and Peru. The study is a primary trial of researching on resource nationalism and provides some insights for theoretical building and simulation on the issue.

DETERMINAN ALIRAN MASUK FDI KE NEGARA-NEGARA ASEAN DARI SUDUT PANDANG INSTITUSI: STUDI DI NEGARA INDONESIA, MALAYSIA, DAN THAILAND

This paper aims to examine the economic and institutional attractiveness to FDI ( Foreign Direct Investment) inflows to ASEAN countries (Indonesia, Malaysia, and Thailand) during 1996-2010 periods. By using panel data analysis, this study argues that in addition to economic attractiveness, FDI inflow is also influenced by institutional quality. This study uses WGI (World Governance Indicators) as measure of institution quality, and shows that improving the quality of public services, making the sounds policies, and controlling the corruption are appealing to FDI inflows.

Does Conditionality on Borrowing Help?

<p>Borrowers of international financial institutions (IFIs) have both interest and conditionality to deal with. Using data from the World Governance Indicators (WGI), we investigated the influence of conditionality on borrowers. By applying a (RED) dynamic panel regression method, we found compelling evidence, which supports our intuition that conditionality increases the debt burden of borrowing countries. However, this was not the case for all the indebted countries. Heavily indebted poor countries (HIPC) had some of their external commitments reduced when they agreed to implement some sets of conditionality. In light of these findings, we posit that the advocated structural reforms which is used, as a justification for prescribing conditionality does not materialize as planned. It however, erodes the capacity of borrower countries toward their debt servicing obligations. A direct consequence is their (RED) incessant need for external development assistance. Results of the study also proved robust.</p>

Trends and mechanisms of corruption in South Korea

ABSTRACTCorruption remains one of the key obstacles to democratization and good governance. Given the nature of the subject, corruption is notoriously difficult to study. International comparisons and rankings of good governance such as the World Bank World Governance Indicators, the Bertelsmann Sustainable Governance Index, or Transparency International's Global Corruption Index are very useful for providing the big picture on corruption. To understand trends and mechanisms of corruption, however, it is necessary to conduct case studies on both successful and failed cases of anti-corruption policies. This paper investigates the successes and challenges of the fight against corruption in South Korea since the beginning of democratization in 1987. The investigation shows that Korea has generally been successful in controlling corruption. The paper argues that the remaining problems can be largely explained by the legacy of authoritarian rule and the undermining of state autonomy through the concentration of economic power.

International reserves and governance: a comparative study for Colombia

This paper examines the relationship between the governance and the demand for international reserves in Emerging Economies (EE). The Database World Governance Indicators Project (Project WGI) available for the period 2002-2013 is employed. The main goal in this research is to examine the possible relationship between risk indicators and political stability, the strength of democratic institutions and legal regime to the accumulation of reserves in the EE in order to discern the matter to the Colombian case. Using panel data for 14 Emerging economies, it became clear how these variables of governance, the traditional determinants of the demand for international reserves and their level interrelate. The panel cointegration tests show the relationship between the behavior of political stability, strengthening of the institutions with the accumulation of international reserves of Colombia and other Emerging economies. The institutional characteristics such as corruption, political stability and violence can affect accumulation of reserves through the perception of uncertainty. The results suggest that in order to reduce the need to accumulate higher levels of reserves, Colombia could continue institutional strengthening so as to demand lower levels of reserves for precautionary reasons.

The Quality of Institutions and Quality of Development

The positive influences of institutions to economic growth, commonly measured by GDP per capita, have been intensively tested by many empirical studies. However, as the challenges of pollution, corruption, and inequality raise up, the quality of economic development and how to achieve the good quality development have become an unavoidable issues. This paper attempts to establish a comprehensive performance measurement for economic development and explores the connections between the quality of institutions and the quality of economic development. The good quality economic development is defined as an innovation oriented environmental friendly economic growth with a fair income distribution, and is quantified by six sub-indices. The Quality Development Index (QDI) is formed by using the econometrics methodologies of mean value treatment and Principle Component Analysis (PCA). The World Governance Indicators (Kaufmann, Kraay, and Mastruzzi 2013) is adopted as the indicators of the institutions quality. The Fixed Effected Regression model is employed and the regressions results are tested by GLS and GMM methodologies. The results demonstrate that the quality of institutions have the significant positive impacts to the quality of economic development. This study also approves that the social, politic and economic institutions are interconnected, and the better quality of social and political institutions, such as more equal political and economic rights, better quality of public services and judiciary system, are significantly contribute to the higher performance of innovation, environment protection, and fair income distribution.

Russian institutional development: challenges to inbound investments and implications for government policymakers

This paper sets out to contribute to the literature by investigating the institutional arrangements facing investors in Russia, the extent to which they had been reformed, and the resultant impact on the willingness of foreign-owned TNCs to commit inbound foreign direct investment (IFDI) to this high-risk transition economy. The degree to which institutional factors explain Russia's persistent underperformance in terms of IFDI is assessed through the review of the academic literature and other documentary sources. Making use of the corruption perception index, ease of doing business, world governance indicators and index of economic freedom (IEF) data, we analyse the provenance of Russia's IFDI-related institutional reforms since the late 1990s until the end of 2013. Given the international isolation of Russia after its annexation of the Crimea and the collapse of the oil price, the paper argues that in order to achieve a sustainable economic development, the Russian Government must implement substantial shifts in the design and functioning of its national institutions.

Economic Growth of Selected South Asian Countries: Does Institution Matter?

In this paper we estimate the proximate determinants of economic growth in four major economies of South Asia with special emphasis on the role of institutions in conjunction with stock of physical capital, human capital and openness (measured as trade as percentage of GDP) as major predictor variables. World Governance indicators are available since 1996; therefore, we run a panel regression using the fixed-effect method of estimation for the period of 1996-2010. We also employ a dynamic panel using System- Generalized Method of Moments (SGMM) to counter the possible endogeneity among the variables and also the weak instrumental problem of earlier Arellano and Bond (1991) dynamic panel model. The two institutional measures, namely, voice and accountability and government effectiveness have appeared to be significant predictors of growth of selected South Asian countries. Our results also support the conventional growth predictors like physical and human capital but the effect of openness on growth surprisingly appears to be negative and significant in the period under study.

Does Foreign Land Acquisition Deprive Per Capita Income in Africa?

This study investigates the implications of large scale foreign land acquisitions on per capita income in Africa. It employs data from World Development Indicators, World Governance Indicators and World Trade Indicators on key variables such as arable land per person, agricultural land as percentage of land area, net food import, regulatory quality, among others (1995-2012) on selected African countries where instances of foreign land deals have been reported. The study formulates empirical models that draw from institutional development theory, which was estimated using Fixed Effects (FE) and Generalised Method of Moments (GMM) techniques in order to handle the issues of country-specific effects and endogeneity. The results from the empirical analysis show that agricultural land influences per capita income significantly. It hereby implies that as more agricultural land are cultivated; the wellbeing of the populace is likely to be enhanced primary through increased income for farmers, increase in real money income for non-farmers, drastic reduction in food inflation and foreign exchange gains for the government. The results of the study suggest the need for controlling the issue of massive foreign land deals through viable institutional framework, though there is need for foreign investment in Africa’s agricultural sector but sound institution is pertinent in order to avoid rent seeking behaviour among stalk holders.

Governance, corruption and Olympic success

This article is the first to utilize a set of World Governance Indicators published by the World Bank to examine what role, if any, various characteristics of governance played in promoting success in the 2012 Summer Olympics. Although no strong statistical linear relationship is found between any of the governance indicators and Olympic success, it is shown that nations belonging to roughly the top quintile in control of corruption had a lower probability of medalling and received lower medal shares, ceteris paribus. A possible explanation for this reduced success is revealed in that scoring in the top quintile of control of corruption is also associated with fewer anti-doping violations, which may indicate lower rates of performance-enhancing drug use.

Does Foreign Land Acquisition Deprive Per Capita Income in Africa?

This study investigates the implications of foreign land deals in Africa with regards to per capita income. It employs data from World Development Indicators, World Governance Indicators and World Trade Indicators on key variables such as arable land per person, agricultural land as percentage of land area, net food import, regulatory quality, among others (1995-2012) on selected African countries where instances of foreign land deals have been reported. The study formulates empirical models that draw from institutional development theory, which was estimated using Fixed Effects (FE) and Generalised Method of Moments (GMM) techniques in order to handle the issues of country-specific effects and endogeneity. The results from the empirical analysis show that agricultural land influences per capita income significantly. It hereby implies that as more agricultural land are cultivated; the wellbeing of the populace is likely to be enhanced primary through increased income for farmers, increase in real money income for non-farmers, drastic reduction in food inflation and foreign exchange gains for the government. The results of the study suggest the need for controlling the issue of massive foreign land deals through viable institutional framework, though there is need for foreign investment in Africa’s agricultural sector but sound institution is pertinent in order to avoid rent seeking behaviour among stalk holders.

Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development

Economic theory and a growing body of empirical literature suggest that private property rights are an important determinant of economic development. In this paper, four commonly used measures of institutional protection of private property rights are assessed, including their relative ability to predict the level of GDP per capita. The risk of expropriation measure from the International Country Risk Guide, the rule of law measure from the World Governance Indicators, and the property rights index from the Economic Freedom of the World exert a similar and robust positive impact on the level of economic development. The executive constraints measure from Polity IV exerts a much smaller impact, and is sensitive to the model specification. The relative strengths and weaknesses of each measure are also addressed. The analysis provides researchers with guidance on selecting an appropriate measure of private property institutions for studies of economic performance.

Measuring world governance: revisiting the institutions hypothesis

We consider the weighting scheme that results in a best-case scenario in the construction of the world governance indicators (WGIs), a proxy of institutional quality. To perform that, we use an approach that relies on consistent tests for stochastic dominance efficiency of a given index with respect to all possible indices constructed from a set of individual components. The test statistics and the estimators are computed using mixed integer programming methods. The results show that the equally weighted (fixed weights) composite WGI index is not the best-case scenario and that governance indicators at different years should be weighted differently. Furthermore, we revisit the institutions hypothesis in the empirical growth literature, where institutional quality is the main determinant of long-term development. We find that not only do institutions matter for economic development but also geography and macroeconomic policies do affect economic development directly.

Institutions and economic development: A Granger causality analysis of panel data evidence

This study examines the causal relationship between institutions and economic development using a panel Granger causality test. The study incorporates two institutional datasets, the International Country Risk Guide (ICRG) and World Governance Indicators (WGI). The empirical results based on 60 countries show that there is a bi-directional causality between institutions and economic development. The findings also suggest that causality patterns between institutions and economic performance vary at different stages of income level. Better institutional quality fosters economic development in higher income countries, whereas economic development tends to enhance institutional quality in lower income countries.

Insider Trading Laws, Learning and Firm Valuation: A Global Perspective

We argue that a country’s institutional setting can affect investor learning and thereby stock valuation and market stability. For a global sample of firms we find that the speed with which analyst forecast errors decline and the speed with which M/B valuation attains its equilibrium value with progression in a firm’s age improves with active insider trading law enforcement. This effect is more pronounced among capital markets with better regulatory infrastructure based on World Governance Indicators (WGI) index. We also provide updated insider trading law enactment and enforcement dates (up to 2013) to Bhattacharya and Daouk (2002), of which their survey covered up to March 1999.

The Capacity Continuum: Tracking the Capacity of State Institutions in Driving Human Development

This paper examines the relationship between a state’s institutional capacity and human development. After analyzing human development trends since 1980 and the state’s role in helping to explain variance, the paper carries out a series of empirical exercises using a proxy variable for institutional state capacity — the Government Effectiveness Index (GEI) from the World Governance Indicators — and human development as measured by UNDP’s Human Development Index (HDI). The panel data, which captures more than a decade of performance, suggests a strong, positive relationship between a state’s institutional capacity and its progress on human development. Plotting the data further reveals a ‘capacity continuum’ in which countries seem to follow a common trajectory over time. The data trends suggest that countries with low institutional capacity and low levels of human development struggle to escape the capacity-deficit trap. Conversely, states that boast high levels of human development and low levels of institutional capacity remain highly vulnerable to shocks and are oftentimes those hardest hit. The data trends also suggest that countries characterized by strong state institutions and high levels of human development are those that are most resilient and best able to withstand and manage shocks even during short-term downturns. Given the context-specificity and idiosyncratic nature of institutional change, the paper provides illustrations of the different typologies of countries along the capacity continuum. The investigation concludes by offering the capacity continuum as an analytical tool to support policymakers in their prioritization of policies and investments.