Natural Openness and Good Government

The author offers a possibly new interpretation of the connection between openness and good governance, with a conceptual model and some empirical evidence. Assuming that corruption and bad governance reduce international trade and investment more than domestic trade and investment, a "naturally more open economy"-as determined by its size and geography-would devote more resources to building good institutions and would display less corruption in equilibrium. How is "natural openness" defined? By size, geography, and language. France would be more naturally open than Argentina because Argentina is more remote. Ability to speak English facilitates international trade. A country with a long coast tends to be more open than a landlocked country. In the data, "naturally more open economies" do show less corruption even after their level of development is taken into account. "Residual openness"-which could include trade policies-is not important once "natural openness" is accounted for. Moreover, "naturally more open economies" also tend to pay civil servants salaries that are more competitive with those of their private sector counterparts. One implication of this research is that globalization may affect governance: as globalization deepens, the "natural openness" of all countries increases. This raises the opportunity cost of tolerating a given level of corruption and could provide new impetus for countries to fight corruption. These patterns are consistent with the conceptual model.

Bibliographic Details

Main Author:	Wei, Shang-Jin
Language:	English en_US
Published:	World Bank, Washington, DC 2000-08
Subjects:	AVERAGE INCOME, BAD GOVERNANCE, BENCHMARK, BILATERAL TRADE, BRIBERY, BUREAUCRACY, BUREAUCRAT, BUREAUCRATIC CORRUPTION, BUREAUCRATIC STRUCTURE, CIVIL RIGHTS, CIVIL SERVANTS, CIVIL SERVICE, COMPETITIVENESS, CONSUMPTION EXPENDITURES, CONTRACT ENFORCEMENT, CONVENTIONAL WISDOM, CORRUPTION, DEMOCRACY, DEMOCRATIC INSTITUTIONS, DEVELOPMENT ECONOMICS, DIRECT INVESTMENT, ECONOMIC DEVELOPMENT, ECONOMIC PERFORMANCE, ECONOMIC RISK, ECONOMICS LITERATURE, EFFECT OF TRADE, ELASTICITY, EMPIRICAL EVIDENCE, EQUILIBRIUM, EXPECTED UTILITY, EXPENDITURE, EXPORTS, FEDERAL STATES, FEDERALISM, FIGHTING CORRUPTION, FISCAL, FISCAL DECENTRALIZATION, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTORS, FOREIGN TRADE, GDP, GDP PER CAPITA, GINI COEFFICIENT, GOOD GOVERNANCE, GOOD GOVERNMENT, GOVERNMENT OFFICIALS, GOVERNMENT PERFORMANCE, GOVERNMENT POLICIES, GOVERNMENT REVENUES, GROWTH RATE, IMPORTS, INCOME DISTRIBUTION, INCOME EFFECT, INCOME INEQUALITY, INCOME LEVEL, INEQUALITY, INSTITUTION BUILDING, INTERNATIONAL LABOR, INTERNATIONAL TRADE, LESS DEVELOPED COUNTRIES, LOCAL GOVERNMENT, LOCAL GOVERNMENTS, LORENZ CURVE, MARGINAL BENEFITS, MARGINAL COST, NATIONS, OPEN ECONOMIES, OPENNESS, OPPORTUNITY COST, OPTIMIZATION, PER CAPITA INCOME, POLITICAL ECONOMY, POLITICAL RIGHTS, POLITICAL RISK, PUBLIC GOVERNANCE, PUBLIC INSTITUTION, PUBLIC INSTITUTIONS, PUBLIC POLICY, PUBLIC SECTOR, REVERSE CAUSALITY, SOCIAL WELFARE, TAX RATE, TRADE BARRIERS, TRADE POLICIES, TRADING BLOCS, TRANSPARENCY, UTILITY FUNCTION, VOTING, WAGES,
Online Access:	http://documents.worldbank.org/curated/en/2000/08/443565/natural-openness-good-government https://hdl.handle.net/10986/19796
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