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Institutional Change and Growth-Enabling Governance Capabilities Nicolas Meisel

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. First, What are we trying to measure ?.

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Institutional Change and Growth-Enabling Governance Capabilities Nicolas Meisel

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  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

  4. 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

  5. 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 IncomeLevels... (iii) ... but not with Income Growth  What’s the missing factor, what are the “other governance capabilities” explaining these growth differentials?

  6. (i) What is « Good Governance »?...

  7. (ii) « Good governance » is linked to thelevel of income...

  8. (iii) … but NOT to the speed ofincome growth

  9. ? 2 3  What explaining factor? ? 1

  10. 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.

  11. 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 ofinvestment and growth “Governance Focal Monopoly”

  12. 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

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