Relationship Between Good Governance and Economic Growth. A Contribution to the Institutional Debate About State Failure in Developing Countries

Numbers of economists of development consider that Good Governance, defined as the quality management and orientation of development policies has a positive influence on economic performance. The question is what content the literature gives to the concept of governance? According to the World Bank, Good Governance is evaluated by the implementation capacity of governance principles driven by a country, providing an institutional framework able to sustain economic growth. Several econometric studies (Kauffman et al. (1999, 2005), Knack et al. (1999) tested the relationship between Good Governance in the sense of "market-enhancing governance" (stimulus institutions market) and showed a positive relationship between Good Governance and economic growth. However a Good Governance policy needs for developing countries to achieve minimum economic growth and political reforms in order to reach a level of development similar to that of industrialized countries. We started discussion by World Bank's Good Governance and criticism formulated by Mushtaq Khan (2002.2004), who turned it in a broader sense, including capacity of states to drive structural change in institutional, political, economic and social fields, in order to ensure long-term economic growth.Our research consists first to present the results of an empirical model based on a panel of developing countries chosen by region (MENA, Latin America, and Asia). The aim is to check if growth rate may or may not be correlated with good governance indicators as defined by the World Bank. Our contribution is to discuss the concept of good governance and the failure of states that take into account the level of development and governance capacity that is based on a structure and distribution of political power that evolves in time and may or may not be positive for growth. The assumption we make here is that the so-called Good Governance policies are relevant if countries reach a sound level of economic and social development that enable that kind of institutions to boost growth