HOW MUCH DOES GOVERNANCE REALLY MATTER? THE EFFECTS OF GOVERNANCE ON WELL-BEING
Arcos Axt, Ivan
<italic> Looking for the impact of governance on well-being, I estimated the relationship of the Governance Indicators constructed by Kaufmann, Kraay and Zoido-Lobaton in 1999 and three well-being outcomes i.e. GDP per capita, infant mortality and years of schooling, in order to find to what extend better governance is related to better levels of well-being. Holding infrastructure and trade openness constant, several Panel Data regressions were used to observe this relationship across four time average periods. The role of infrastructure in this model is outstanding. Holding everything else constant, if infrastructure increases by 1%, GDP per capita is predicted to increase by 11%, infant mortality is predicted to decrease by 9% and the population over 25 years old without schooling is predicted to decrease by 18%. Whereas 1% increase on trade is predicted to decrease infant mortality by 15%, it is not significant to GDP per capita and years of schooling. I found that the impact of several Governance Indicators on GDP per capita turns out to be substantial. One standard deviation increase in any of the Governance Indicators increases GDP per capita between 5 to 16%. However, the effects of governance on infant mortality and schooling are less clear. The only significant results are associated with the only two indicators related with the distributional role of the government i.e. Government Effectiveness and Regulatory Quality. Holding else constant one standard deviation increase in the measure of the effectiveness of government produces a 25% points decrease on the population over 25 years old without schooling, whereas one standard deviation increase in the quality of the country's regulation means a 8.2% reduction on the country's infant mortality rate. It also appears to indicate that GDP growth or average GDP just tell us one part of the story in terms of well-being. The responsibility of the government turns out to be significant in order to ensure not only economic growth but also using this wealth to improve country's human capital expanding opportunities for all the population. Finally, despite the fact that I am not accounting for public spending, it appears to play a central role in these relationships and it seems worthy for further researches.</italic>
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