How Globalization Improves Governance

27 Pages Posted: 25 Oct 2001

See all articles by Federico Bonaglia

Federico Bonaglia

Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV)

Jorge Braga de Macedo

New University of Lisbon - Faculdade de Economia; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia

Date Written: October 2001

Abstract

Globalization, governance and economic performance affect each other in very complex mutual relationships. In this Paper, we establish a clear and well-circumscribed hypothesis: 'Is there an effect of globalization on governance?' To test this hypothesis or, even more specifically, to test how openness can affect the quality of domestic institutions, we survey available theoretical explanations of causal relationships between globalization and governance. Microeconomic theory helps us identify trade policy, competition by foreign producers and international investors, and openness-related differences in institution building costs and benefits, as three major transmission mechanisms through which openness affects a country's corruption levels. Examining a large sample of countries covering a 20-year long period, we found robust empirical support for the fact that increases in import openness do indeed cause reductions in corruption, a crucial aspect of governance. The magnitude of the effect is also quite strong. After controlling for many cross-country differences, openness' influence on corruption is close to one third of that exercised by the level of development. Some cautious policy conclusions are derived.

Keywords: Corruption, globalisation, governance, international trade

JEL Classification: D72, D73, F19, K42

Suggested Citation

Bonaglia, Federico and Braga de Macedo, Jorge and Bussolo, Maurizio, How Globalization Improves Governance (October 2001). Available at SSRN: https://ssrn.com/abstract=288354

Federico Bonaglia (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV) ( email )

2 rue Andrea Pascal
75016 Paris
France
+33 1 4524 9603 (Phone)
+33 1 4524 7943 (Fax)

HOME PAGE: http://www.oecd.org/dev

Jorge Braga de Macedo

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://https://blogs.worldbank.org/team/maurizio-bussolo

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