Essay Sample on Good Governance and Economic Growth

The economic transformation of most of the countries is associated with the improvements they have had in their governance and bureaucratic mechanisms. In, for instance, the initiation of bureaucratic reforms took place in the 1980s, and from the early 1980s, government institutions got undertaken, and there were significant changes to the economic policy (Wilson, 2016). It was then followed by exceptional financial performance, and today, China boasts of a 9 percent annual average GDP growth for more than 30 years, and in the history, this is the longest ever recorded sustained episode of super-rapid economic growth (Wilson, 2016).

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Regardless of such result, there still exists a debate on the causative relationship existing between good governance and economic growth. Studies are pointing out the bureaucratic quality improvements and environmental regulation that took place from the very start of the reform era as the significant driving forces behind the rapid economic growth in China. There are also arguments by others that the government role was limited to the relaxation of the stronghold of the communists in the economy to create a space whence there could be an economic activity, a move they describe to have failed in the liberalization early days, and the aim was the provision of effective formal governance. For the early economic growth, it majorly relied on interpersonal networks and informal norms, and the government later improved the following economic development (Abdellatif, 2003).

There has been a support to the previous empirical and theoretical literature by both the casualty directions between economic performance and the quality of governance. When we look at how the quality of governance affects economic growth, several potential channels exist through which casualty may operate. Through bureaucracy professionalization, bureaucrats get career paths within the civil service that are based on merit and are predictable, and this leads to longer time horizons and stability that encourages public infrastructure investment having long-term pay-off instead of the present consumption. The systematic decision-making based on rules has led to bureaucratic coherence which in turn has increased the effectiveness of primary infrastructure projects involving government agencies collaborations. Private businesses can also engage in long-term investments as a result of stable and trusted bureaucracy since they will now cut on the perceived risks associated with bureaucratic turnover and changing government policies. Opportunities for corruption also reduces as a result of bureaucratic professionalization, and this leads to the encouragement of productive investment. Looking at it from the perspective of policy and institutions, laws and regulations accompanied by impartial enforcement by a governance system support innovation and investment to provide an environment conducive for economic growth.

Social sciences have seen a long tradition based on the interest of the role that China played on economic transformations through governance. Wilson (2016) states that the only critical institutional support that would be necessary for the development of the modern capitalist economy is the public administration professionalization, and more specifically, the Germany early 20th-century bureaucratic organizational form. Cross country empirical studies have furthered their support for the need of Weberian bureaucratic structures needed for poverty reduction and economic growth (Abdellatif, 2003). Economists and economic historians in the recent years have also put a lot of emphasis on the importance of existing institutions governing the interaction between economic actors and constrain the potential political power abuse as key in the determination of a country's economic growth prospects. Cross-country empirical evidence also supports such arguments.

The existing literature has ignored and given little attention to the reverse causal direction proposing that economic development leads to good governance instead, though there are some reasons which could be used to support the argument that government improvements may follow economic growth. For instance, when the economy is developed, then the government can easily acquire the resources it needs to implement reforms in its structures, help in the creation of a constituency of businesses and citizens who can advocate for governance improvements and use better formal governance to improve the relative payoff to investments. The hypothesis described above has however received support from some smaller empirical literature that uses time-series variation in national institutional quality.

World Bank (2017) discussed in details the importance of good governance. According to the report, governments received requests to place attention in ensuring they had sound governance systems in place. There were proofs from the statement indicating the importance of good governance in the achievement of economic development in economic quality, economic growth, and economic sustainability and stability. From the study, there was also proof that in the absence of corruption and bribery, there is an increased income per capita, that is, a positive relationship exists between income per capita and the lack of corruption and bribery.

The World Bank (2017) furthered its study by discussing the incredible achievement of countries to come out of any income trap. Countries in the middle income like Thailand usually face situations whereby the rural areas income workers migrate to the urban cities to work in industries and services (Kraipornsak, 2018). This is indeed a beneficial process to the economy since it can as a consequence raise the income of the country. However, the process goes up to a stage of limitation where the benefits now reach diminishing marginal returns to labor. Only the total factor productivity growth can now fulfill any further gains of rapidly increasing workers income. To achieve the growth of overall factor productivity, there should be an enhanced efficient resource allocation of factors across sectors.

Apart from the total factor productivity growth, there is a need by the middle-income countries to improve and upgrade their complicated productions processes and qualified facilities. To achieve advanced development, there is a need for public and private coordination and participation. Meeting an efficient resource allocation needs good governance, and governance policies should be efficiently implemented and achievable by the governance (Kraipornsak, 2018).

The long-lasting success by China has always been used as an example when counter arguing about the importance of good governance in economic growth. From the Chinese correlation, it calls into question the robust linkage existing between economic growth and multiparty democracy. However, we all know that democracy is a good thing on its own and even if it were not to have any impacts on economic growth, it would still be admired. However, in the context of economic growth, there exists a great rift between countries whose power is monopolized by a single dictatorial individual and those where there is multiparty democracy. And China is an excellent example of multiparty democracy where there has been contestability and competition within a sizeable communist party. The party is the one operating as a relatively meritocratic and inclusive institution and not an autocratic leader that has ruled in the more significant part of the post-Mao period.

References

Abdellatif, A. M. (2003, May). Good governance and its relationship to democracy and economic development. In Global Forum III on Fighting Corruption and Safeguarding Integrity, Seoul (Vol. 20, p. 31). ftp://undp-pogar.org/LocalUser/pogarp/governance/aa/goodgov.pdf

Kraipornsak, P. (2018). Good Governance And Economic Growth: An Investigation Of Thailand And Selected Asian Countries. Eurasian Journal of Economics and Finance, 6(1), 93-106. https://scholar.google.com/scholar_url?url=https://ideas.repec.org/a/ejn/ejefjr/v6y2018i1p93-106.html&hl=en&sa=T&oi=gsb&ct=res&cd=0&d=16980086833873307819&ei=Q0zIXI2BJIjmmwHaqpK4Bw&scisig=AAGBfm3lWOZ2CK-AispjaZpMpvBePeMQrQ

Wilson, R. (2016). Does governance cause growth? Evidence from China. World Development, 79, 138-151. https://scholar.google.com/scholar_url?url=https://www.sciencedirect.com/science/article/pii/S0305750X15002958&hl=en&sa=T&oi=gsb&ct=res&cd=0&d=15455196201156313980&ei=iUzIXLKHEZLEmgGJpZ-YBg&scisig=AAGBfm2CzkXQDpxj02tt1JKF3cYlLEDYxg