Governance-growth nexus: a comparative analysis of countries in different operational lending groups

Abstract

This study sought to investigate governance-growth nexus using the case experience of Blend and IBRD operational lending categories. There were four specific research objectives, the first one being to figure out the impact of individual governance indicators on economic growth in different lending groups. The second objective was to assess whether the impact of good governance on GDP growth depend on lending category or not. Thirdly, the study seeks to examine the influence of credit status on the governance-growth nexus. The last research objective was to investigate the overall long-term link between governance and economic growth. This study adopted the quantitative research approach to answer the research questions. The population in this study was made up of countries in both Blend and IBRD operational lending groups. These are all developing countries. The researcher made use purposive sampling techniques. Data was collected from World Bank databank and Standard & Poor databank. STATA package was used in coming up with the model results. The study found out that although government effectiveness and rule of law had a slightly significant negative result in Blend countries, generally good governance and economic growth had a positive connection. A close association between credit status and the governance-growth nexus was also established. It was also observed that there is a differential effect on economic growth between countries of different credit status. The study recommends policy interventions in on rule of law, government effectiveness and political stability so as to ensure economic growth. Ssecondly, the study recommends for the careful allocation of public resources so that governance issues receive a fair share in budgets nationally and internationally. To improve economic growth, governments are recommended to change the underlying institutional arrangements so as to change the equilibrium to which policy outcomes gravitate irrespective of operational lending category. The international community and governments need to promote rule of law. Rule of law is the basis for property rights and the adjudication of commercial claims, and protects a private sphere and individual human rights. Growth is only possible if there is a clear protection of property rights and enforcement of laws.