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.
Summary: | 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. |
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