The effect of governance on economic performance: Panel data analysis

In the late 1980s, it has been seen that market-oriented regulations was not solely sufficient to provide a sustainable economic growth in developing countries. In this context, the concept of governance determines political obligations of the state those are supporting state?s regulatory role in the economy. To the international financial institutions, good governance has three fundamental components namely, established democracy, maintenance of rule of law, well-qualified bureaucracy. The sustainable economic growth contributes to solve many macroeconomic problems. Therefore, in the study, economic growth rate is taken as an economic performance indicator.The aim of this dissertation is to examine impact of governance on economic performance in 108 developed and developing countries for the period of 1988-2004 by using panel data analysis. In the analysis, countries are categorized as developed and developing ones, and then developing countries are assorted into geographic regions and income levels. Overall test results show that, in the case of disregarding only a limited number of models, governance components have no effect on economic growth. This means that suggestions of international institutions, adopting principles of neo-liberal economic thoughts regarding the governance, have not provided the desired impacts on economic growth. Empirical findings, also, reveal that the improvements in governance components do not hinder economic growth.