ABSTRACT
Most economists would agree that governance is one of the critical factors determining the growth prospects of countries. There are a number of critical structural features of developing countries that prevent the achievement of significant progress on the good governance front. This chapter outlines some of the governance issues that we already know about, and identifies other areas where more research is necessary to assist policy. Good governance reforms aim to promote governance capabilities that are market-enhancing: they aim to make markets more efficient by reducing transaction costs. The good governance agenda ignores a number of critical structural challenges faced by developing countries going through the transformation from low productivity pre-capitalist societies to higher productivity capitalist ones. It reviews four structural features of developing countries that require very different governance capabilities if developing countries are to make successful and sustainable transformations into higher productivity economies.
