Governance spending fixation as a tool for reform to improve institutions

Eimantas Blažys

Economic Research-Ekonomska Istraživanja, 2020, vol. 33, issue 1, 934-956

Abstract: There is a consensus in the scientific community that most often the main obstacle to development is the absence of good institutions, however, it is also widely recognised, that this idea is of little use without explanations on how they can be improved and made to self-sustain ‘good equilibrium’. Purpose of this article is to propose such an explanation together with a tool for reform that could potentially address this issue. For this purpose, literature review is conducted to explore links of institutions to economic growth in search for opportunity to have a positive effect to the system through means of reform. Such an opportunity is found exploring governance-corruption-economic growth connection, to exploit which, a simple method is proposed that involves only basic math. A matching exercise between governance spending variables and governance evaluation variables reveals both a best way to judge governance spending and a potential value for orientation that could be used for limiting misallocation of resources in countries with governance overspending. At first glance a modest find may have significant practical implications, as this value could be used as a tool for reform, application of which could be expected to have an effect in two complementary ways: pragmatic – inefficient use of resources could be limited by diverting them to other government sectors; and incentives based, which when looked at through a lens of literature on ‘New institutional Economics’ looks especially promising, as in essence it could potentially enable application of principle of free market in state governance for most of poorly governed post-socialist European countries.

Date: 2020
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DOI: 10.1080/1331677X.2019.1676282

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