Public Information and Performance: The Role of Spatial Dependence in the Worldwide Governance Indicators among African Countries

Abstract

The Worldwide Governance Indicators (WGI) provide transparent and comparable country statistics for different dimensions of governance linked to (under)development. Yet, does the public availability of governance data actually enhance performance? If investors, donor agencies and citizens are made aware of relative governance performance, competition for inward investment, such as FDI and ODA, and domestic legitimacy become plausible mechanisms for diffusion of good governance. We test whether such mechanisms operate using the WGI for Africa, and find evidence for spatial diffusion of democracy, rule of law, and corruption control.There is no evidence for diffusion of regulatory quality and government effectiveness.

The Effect of Governance Quality on Economic Growth: Based on China’s Provincial Panel Data

“…However, the endogeneity of governance quality leads to an upward move of the estimation coefficient of variable Gov, and tends to overestimate the effect of good governance on economic growth, which means economic growth can also affect governance quality; this result conforms to those obtained by Seldadyo et al (2010), Ward and Dorussen (2015), and Wilson (2016). For the impact of economic growth on governance quality, there are some reasons, such as the following: the first is income effect, the increase of income level can bring the increase of demand for higher level of governance quality in China (Kaufmann and Kraay 2002), which means people would pay more attention to maintain their own expression rights and participation rights, and to improve the rule of law and the quality of public services; the second is complexity effect, economic growth, by increasing the complexity of trade, may strengthen the relative efficiency of formal governance mechanisms (Dixit 2003), which can create strong incentives for the improvement of governance quality; the third is practice effect, the great success of economic development can prompt political leaders to formally adopt informal governance practices that have been proven to be effective in supporting economic development (Nee and Opper 2012); the fourth is constituency effect, economic growth may create a constituency of businesses and consumers, who have the interest and ability to prompt the improvement of governance quality (Wilson 2016); and the fifth is supply effect, economic development can bring more resources such as funds, which enables the improvement in governance quality.…”

Democracy in the neighborhood and foreign direct investment

“…For example, Kelejian et al (2013) find that governance in neighboring countries is positively related to the countries’ own governance levels. Similarly, Ward and Dorussen (2015) find that public knowledge of the importance of governance leads to higher diffusion of good governance to neighboring countries. One of the practical implications of this is the establishment and enlargement of the European Union.…”

“…If a country is surrounded by countries that have strong democratic institutions, these neighboring countries are less likely to experience conflict (see, for example, Hegre, 2014), which would then decrease the likelihood of the host country experiencing conflict (Salehyan & Gleditsch, 2006; Blattman & Miguel, 2010). Furthermore, if a host country is surrounded by countries that have good institutions, this would also improve the economic outcomes of the host country (Bosker & Garretsen, 2009), and would lead to improvements in its institutional quality (Kelejian et al, 2013; Ward & Dorussen, 2015). Overall, being surrounded by countries that have well‐developed institutions would increase the likelihood of countries improving their economic and institutional outcomes and decrease the likelihood of them experiencing conflict.…”

“…As discussed above, countries that have better institutional settings receive relatively higher capital flows, and neighboring countries would compete to improve their institutional quality setting to attract higher capital flows. In that respect, it is not surprising to expect that neighbors’ institutional setting matters for FDI where the diffusion of information and institutional framework is stronger (see, for example, Easterly & Levine, 2000; Kelejian et al, 2013; Ward & Dorussen, 2015). In this paper we argue that neighboring countries that compete to attain a better institutional environment to attract FDI create positive spillover effects on each other, suggesting that institutional agglomerations tend to attract more investment.…”

Corruption in space: A closer look at the world's subnations

“…When governments are in competition, they may want to adapt their institutional quality in order to provide a trade and investment friendly institutional environment (Qian & Roland 1998). In line with that, Ward & Dorussen (2015) argue African governments improve their quality of institutions in strategic interaction competing for aid donation and foreign direct investments.…”