ABSTRACT

There is a strong association across countries between proxies of transparency, such as absence of corruption, freedom of the press, or information disclosure by public bodies, and standard measures of economic development. This says little about whether more transparency actually leads to better economic outcomes – first, because transparency is difficult to fully disentangle from other broad characteristics of a society such as the level of democratisation or the quality of political and legal institutions; second, because economic development itself leads to political and institutional development, possibly including greater transparency. This chapter discusses theoretical mechanisms for a direct effect of transparency on economic outcomes, and empirically tests the effect of two specific indices of transparency on average income levels for a dataset covering more than 90 countries over 30 years. A proxy of the ex ante (predictability) aspect of transparency has an economically meaningful positive effect on average income levels, which operates largely through the investment channel. In contrast, a proxy of the ex post (accountability) aspect of transparency does not affect average income; nor do either of the transparency proxies show convincing effects on alternative indicators of economic development such as income inequality or poverty rates.