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"Good governance is the most important factor for creating favorable conditions in developing countries both to promote or attract productive investment in the real economy, by local and foreign firms alike, and to make it possible for a country to derive maximum long-term development benefits from that investment."
This view, which has recently come to be held by many corporate managers, is consistent with striking new empirical evidence on the determinants of economic growth in developing countries. Indeed, for much of the 1980s and 1990s we lacked policy-relevant insight into the most important question from a development policy perspective: Why have a few developing or "emerging-market" economies grown impressively over the last decades, while much of the developing world has done poorly, even stagnated or regressed?
Shedding important new light on this question, recent evidence shows the crucial potential role of the quality of governance - both corporate and public governance, and their interaction with one another - in creating incentives that are conducive to long-term productive investment in both tangible and intangible real (including human) capital by domestic and foreign investors, investments that contribute significantly to long-run productivity growth in the national economy.
Yet the opposite is also true: local institutions of governance can create incentives for predatory types of investment behavior that do not contribute to national productivity growth, and often do the opposite by creating or encouraging powerful negative-sum-games of rivalry that lead to waste of resources. Equally important, moreover, can be causal relationships (as in "state capture") that run in the opposite direction: powerful investors, in private and public firms alike, can have strong impacts and influence, for good or evil, on the quality of governance (corporate and public) at both the national and local level.
The challenge now is to address the "how to" question: How, in concrete terms, to achieve governance institutions that are conducive to productivity-enhancing investment behavior? How effectively to improve the quality of governance in view of local realities "on the ground" in a developing country? This series of case studies, provides insights into institutional and policy reform to improve governance, promote investment, and reduce poverty. |
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