Governance and PoliticalEconomy in WBG Growth Analysis
Kai Kaiser & Shahrooz Badkoubei
Applied Inclusive Growth Analysis
Day 4, March 26, 2009
The World Bank
Binding Constraints in Practice

Survey of Recent CEM Practice
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Various Methodologies

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FY 2007-8: Grey/Quasi-Grey Cover
Desk Review & Follow-up Dialogue with TTLs
8 HRV Approach
1 Multidimensional
Policy Priorities Varied

Growth focus: acceleration, diversification
sustainability, inclusive, pro-poor…
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Objectives
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Identify Reform Challenges in Practice
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Country Specificity
Examine how GPE being addressed for
country growth policy dialogue
Develop resource materials for task
teams
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Caveats
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CEM Categorization Only Indicative
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Many CEMs don’t use explicit (HRV) binding
constraints to growth methodology
Constraints time-specific

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Impacts of Global Economic Crisis
GPE Dialogue May Be Off-Line
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Not explicit in Grey Cover CEMs
Implementation counterparts problem…
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Revealed Binding Constraints
Low Social Returns
Low Appropriability
Government Failures
Market Failures
Poor
Low human Bad infraMicro
Macro
Information Coordination
geography
capital
structure
risks
risks
externalities externalities
Angola
X
X
X
Benin*
X
X
X
Ghana
X
X
X
X
Kenya*
X
X
Mali
X
X
Mongolia*
X
X
X
Morocco*
X
X
X
X
Namibia*
X
X
X
Niger
X
X
X
X
Nigeria*
X
X
X
Panama
X
X
X
X
Russian
X
X
Rwanda*
X
X
X
X
Senegal
X
X
Turkey
X
X
X
Uganda*
X
X
Total
2
6
12
14
6
4
4
* denotes growth diagnostics following the HRV approach
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High Cost of Finance
Bad int'l
finance
Domestic
savings
Poor intermediation
X
X
X
X
0
0
X
5
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CEM Highlights: Angola
Angola:
Constraints/
Vulnerabilities
Governance/
Institutional
Underpinnings
Political-Economy
Drivers (including
Actors,
Structures/Incentives)
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Micro-Risks, Property Rights,
Corruption, Taxes leading to
lack of private
investment/entrepreneurship/co
mpetitiveness outside oil-related
sectors
Incomplete transition to full
market economy illustrated by
high levels of government
regulation and burdensome
procedures in property market,
labor market, and key industries
Infrastructure gaps (transport, sanitation,
telecoms).
Government monopoly in provision
plagued by inefficient management; i.e.
Regulatory frameworks are largely
underdeveloped. The only stand-alone
infrastructure regulatory body presently
in operation (telecommunications sector)
does not have an adequate degree of
autonomy from government.
State owned - Entrenched vested
interests and rent-seeking (political
intervention in the granting of licenses
and concessions and the determination
of prices).
Entrenched vested interests
(conflict within the ruling
MPLA between reformers
favoring a stronger marketoriented approach in the
management of the economy,
versus the non-reforms).
Political-economy based on heavily petroleum dependent/booming
economy. Resource dependence shapes nature or state-society relationships,
state incentives.
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CEM Highlights: Benin
Vulnerabilities/ Constraints Distortionary and poorly administered
tax system, complex and lengthy
customs and trade procedures; and poor
government effectiveness, including
contract enforcement, weak institutions
and corruption.
Efforts to reform investment code or
Governance/ Institutional
introduce private sector have faced
Arrangements
tensions between special interest and
decision makers.
Political market imperfections: weak
P-E Drivers
party system – high political
fractionalization, enabled lack of
information, leading to clientelistic
behavior by decision makers.
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Costly and unreliable infrastructure
services especially electricity,
domestic rail and road transport,
and communication.
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CEM Highlights: Ghana
Vulnerabilities/Constraints
low productivity
Governance/Institutional
Arrangements
P-E Drivers
Weak property rights hurt incentives to inefficient public spending
invest.
History/ cultural factors
Political market imperfections:
weak party system – high political
fractionalization, enabled lack of
information, leading to clientelistic
behavior by decision makers.
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Bottlenecks in energy, water and
sanitation, rural roads, and ICT
infrastructure. Restoring the energy
balance would improve prospects
for large numbers of energyintensive sectors, including some
nontraditional exporting industries.
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CEM Highlights: Kenya
Vulnerabilities/Constraints
micro-risks (corruption, security)
macro-economic instability
high cost of infrastructure services
(energy, ports)
Governance/Institutional
Arrangements
poor public services delivery
weak institutional framework for
project selection and subjecting capital
projects to systematic economic
analysis
poor public services delivery
weak institutional framework for
project selection and subjecting
capital projects to systematic
economic analysis
P-E Drivers
High social fractionalization weakens
distribution of public goods/services
leading to conflict
High social fractionalization
weakens distribution of public
goods/services
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GPE & “Second Best” Institutions
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Differentiate Form from Function
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E.g., China’s Reforms
Shift from Normative/Presumptive
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Good Enough Governance (Grindle)
Contextual Fit
 Which forms are effective and politically
feasible?
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Findings
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Governance, Political-Economy, Institutional Issues
Inherent to All Binding Constraints
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“Governance/micro-risks” identification and remedies
diffuse
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Addressing constraint requires technical & GPE skills
Clarify terminology
Sharpen diagnostics
Need to document value added
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Don’t erode CEM “objectivity”
Led to alternative/succesfull engagement
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Resources
Governance & Political-Economy for Growth Analysis
SharePoint Intranet Site
http://connect.worldbank.org/units/prem/PDGPEA/pdgpe/default.aspx
Selected References
Rodrik, Dani, (2008), Second Best Institutions, Cambridge, MA: Harvard University (mimeo)
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