How to Build QoG

1
How to Build QoG?

• Two ways to assess Which Factors ? QoG
• La Porta et al. (1999)
• Adsera, Boix, Payne (2003)
• Two normative proposals on What to do
• Rodrik (2000)
• Rothstein (2007)

2
La Porta et al. (1999)

• Dependent variable What is QoG?
• Necessity to look at Exogenous factors ? QoG
• No Economic Growth
• What could be and exogenous factor?

3
Factors ? QoG

• 1) Legal Origin
• Mechanisms? Socialist Law, French Law, Common Law
  (less Scandinavian and German)
  
• Problems? Endogeneity?
• 2) Religion
• Mechanisms? Catholic and Muslims
• Problems?

4
Data

• Good description of government indicators
• Interesting approach
• Correlations between dependent variables (T.2).
  Why?
  
• Correlations between in dependent variables (T.3)
  Why?
  

5
World Bank Governance Indicators I

• "Not everything that can be counted counts, and
  not everything that counts can be counted"
  
• Albert Einstein
• 212 countries and territories
• Period 19962006
• Six dimensions of governance
• Voice and Accountability
• Political Stability and Absence of Violence
• Government Effectiveness Regulatory Quality
• Rule of Law
• Control of Corruption

6
World Bank Governance Indicators II

• Reflect the views of enterprise, citizen and
  expert survey respondents in industrial and
  developing countries
  
• They are aggregate indicators made with lots of
  individual indicators by survey institutes, think
  tanks, non-governmental organizations, and
  international organizations

7
World Bank Governance Indicators

• http//info.worldbank.org/governance/wgi2007/world
  map_start.asp?allcountries1
  
• Intrinsic problem with these data statistically
  significant differences at opposite ends of the
  distribution of governance
  
• Very difficult to discriminate among the majority
  of countries with any degree of confidence
  

8
Results (T.4-6)

• Which are the most relevant factors?
• The results seems very strong, dont they? Or do
  you see some problem?

9
Adsera, Boix, and Payne 2003

• Important contributions to the debate What Causes
  Good Government
  
• Democracy necessary, but not sufficient
  condition for good government. We also need Free
  Press
  
• Unlike most of the previous literature, the
  theory here fleshes out the micro-mechanisms
  through which rulers comply or are made to behave
  in a benevolent fashion
• Original test cross-country and within-country
  (US)

10
Mechanisms of the theory

• 1.Democracy Dictatorships
• Mechanism Electoral accountability
• 2.Better informed citizens Poorly informed
  citizens
  
• Mechanism No room to divert resources when
  people know it!
  
• 3.Capital mobility non-mobile assets (e.g.
  oil)
  
• Mechanism People can exit

11
Empirical analysis

• Encompassing account of alternative explanatory
  variables (p.451-457)
  
• Main result as long as they introduce controls,
  Democracy seems to exert less significant
  influence on good government, but Free Press
  remains strong
• Fine, but sure you also found some problems

12
World Bank Governance Indicators I

• "Not everything that can be counted counts, and
  not everything that counts can be counted"
  
• Albert Einstein
• 212 countries and territories
• Period 19962006
• Six dimensions of governance
• Voice and Accountability
• Political Stability and Absence of Violence
• Government Effectiveness Regulatory Quality
• Rule of Law
• Control of Corruption

13
World Bank Governance Indicators II

• Reflect the views of enterprise, citizen and
  expert survey respondents in industrial and
  developing countries
  
• They are aggregate indicators made with lots of
  individual indicators by survey institutes, think
  tanks, non-governmental organizations, and
  international organizations

14
World Bank Governance Indicators

• http//info.worldbank.org/governance/wgi2007/world
  map_start.asp?allcountries1
  
• Intrinsic problem with these data statistically
  significant differences at opposite ends of the
  distribution of governance
  
• Very difficult to discriminate among the majority
  of countries with any degree of confidence
  

15
Analysis of corruption in US States

• Which is the advantage of testing a theory in one
  single country? Is there any added value?
  
• Nice result more circulation of papers ? less
  corruption
  
• Other variables that matter electoral turnout (a
  lot), social capital (a little)
  
• Any omitted variable?

16
Rodrik 2000

• Assumption Homo economicus is alive and well in
  the tropics and other poor lands
  
• From Do Institutions Matter? to Which
  Institutions Matter and How does one Acquire
  them?
  
• Which Institutions Matter?

17
How does one acquire good institutions?

• 1) Blueprint perspective getting a manual how
  to build a market economy (Washington
  consensus)
  
• Top-down
• 2) Local-knowledge perspective experiments
• Bottom-up

18
Is Democracy the best way to find an equilibrium
between 1) and 2)?

• Lets look at Figure 1
• Is Growth rates best measure of economic
  performance?
  

19
Rothstein 2007

• The one-trillion dollar question What to do?
• Mr. Sandström
• Also important How to do it?
• Path-dependent, small changes (Pierson, Rodrik)
• Big Bang changes