Do More Transparent Governments Govern Better?

Abstract

Islam explores the link between information flows and governance or institutional quality. Economic theory expounds on the importance of information on economic outcomes either through its direct effect on prices and quantities or through its effect on other factors such as institutions and the quality of governance. She shows that countries with better information flows also govern better. Two kinds of indicators are used to assess better information flows. One index is based on the existence of freedom of information laws. A second index called the "transparency" index measures the frequency with which economic data are published in countries around the world. Empirical analysis shows that countries which have better information flows as measured by both indicators have better quality governance.

This paper - a product of the Poverty Reduction and Economic Management Division, World Bank Institute - is part of a larger effort in the institute to disseminate its work on institutions and governance.