The role of governance in economic development

Abstract

Purpose – The purpose of this paper is to explore the impact of corruption as an important element of weak governance, with control variables such as inflation rate, openness to trade and dependency ratio on gross domestic product (GDP) per capita income of nine selected countries in Asia and the Pacific. Design/methodology/approach – This study is based on an annual panel data covering the period from 1985 to 2012, and a simple multiple regression for empirical investigation is used. Both fixed effects and random effects models were used as analytical techniques. Findings – The study reveals that both corruption and inflation rate are negatively related to GDP per capita and are statistically significant. As to the impacts of the control variables i.e., dependency ratio is found to be negative and openness to trade to be statistically significant which shows a positive impact on GDP per capita. Practical implications – The results resoundingly confirmed the importance of good governance, therefore, reducing endemic corruption and controlling inflation needs to be among the foremost factors for consideration for policymakers in adopting and implementing macroeconomic and public policies. In order to be most effective in tackling corruption, it is important to get to the root of the problem. In light of the study findings, it is suggested that corruption need to be put under control and economies be made more open to attain more benefits and accelerate economic growth and development. Originality/value – Explicitly, this study provides some valuable evidence on the linkage between endemic corruption and economic growth in some Asia and the Pacific countries in particular and on developing world in general. Presumably, this is the first inclusive investigation on the subject under the study in the context of Asia and the Pacific countries and will emphatically contribute to the literature as well.