ABSTRACT
The conclusion that countries with better governance grow faster, on average, has withstood enormous scrutiny. It is an artifact neither of omitted country characteristics that favour both governance and growth nor of the effects of growth on governance, and there is no disagreement that dysfunctional governance is far more likely to characterize poor countries than rich. Nevertheless, important questions remain unanswered, not least of which is, how can countries improve governance? And important anomalies remain unexplained. One is that many democracies have worse governance indicators than many non-democracies. A substantial literature argues that the formal institutions of restraint associated with democracy, elections and political checks and balances, are key to governance. The discussion below shows that these effects are small. The second anomaly is fast growth in some countries, notably in East Asia, despite apparently mediocre governance and the absence of the formal institutional arrangements often thought to be important for good governance.
