Governance, Rule of Law and Transparency Matters: BRICs in Global Perspective

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1 Governance, Rule of Law and Transparency Matters: BRICs in Global Perspective Daniel Kaufmann * Senior Fellow, Brookings Institution Panel on Transparency & Rule of Law in BRIC Nations, Series Examining Rise of the the U.S. Chamber of Commerce, Washington, DC, June 4 th, 2010 * I benefitted from the excellent assistance of V. Penciakova 1

2 BRICs, some Basic Stats Country Total GDP (in Bns.) Total Stock of FDI (in Bns.) Annual Flow of FDI, 2008 (in Bns.) Brazil 1, Russia 1, India 1, China 4, Mighty numbers, but Source: World Development Indicators & CIA World Factbook Note: In PPP terms, GDPper capita (in 000s) is as follows: Brazil: 10.2; Russia: 15.1; India: 3.1; China: 6.6; Chile: 14.7; Germany: 34.1; S. Africa: 10.1; S. Korea:

3 BRICs, some Basic Stats + Country Pop. (mn) GDP (bn) GDP per cap. ( 000s) FDI Stock (bn) FDI Stock per capita FDI 2008 (bn) Annual FDI Per capita (2008) Brazil 192 1, , Russia 142 1, , India 1,140 1, China 1,325 4, Large Countries, yet per capita figures brings out another perspective. And next let us compare with others Source: World Development Indicators & CIA World Factbook Note: In PPP terms, GDPper capita (in 000s) is as follows: Brazil: 10.2; Russia: 15.1; India: 3.1; China: 6.6; Chile: 14.7; Germany: 34.1; S. Africa: 10.1; S. Korea:

4 BRICs& others, some Basic Stats + Country Pop. (mn) GDP (bn) GDP per cap. ( 000s) Brazil 192 1, Russia 142 1, India 1,140 1, China 1,325 4, Chile Germany 82 3, South Africa South Korea Total FDI Stock (bn.) , FDI Stock per capita 1,659 1, ,765 12,451 2,565 Annual FDI Flow (2008 bn) FDI per Capita , , Source: World Development Indicators & CIA World Factbook Note: In PPP terms, GDPper capita (in 000s) is as follows: Brazil: 10.2; Russia: 15.1; India: 3.1; China: 6.6; Chile: 14.7; Germany: 34.1; S. Africa: 10.1; S. Korea:

5 WGI: Six Dimensions of Governance Governance as the set of traditions and institutions by which authority in a country is exercised specifically: The process by which those in authority are selected and replaced VOICE AND ACCOUNTABILITY [VA] POLITICAL STABILITY & NO VIOLENCE/TERRORISM [PV] The capacity of government to formulate and implement policies GOVERNMENT EFFECTIVENESS [GE] REGULATORY QUALITY [RQ] The respect of citizens and state for institutions that govern interactions among them RULE OF LAW [RL] CONTROL OF CORRUPTION [CC] 5

6 2.0 How do the BRICs Measure Up on Governance? Good governance Governance Composite (Avg. of 6 Dimensions) 1.5 Others BRICS NIGERIA BRAZIL CHINA INDIA RUSSIA CHILE SOUTH AFRICA KOREA GERMANY Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

7 Unbundling Governance: Economic Pillar, BRICS+ Good governance Government Effectiveness BRICs Regulatory Quality BRAZIL CHINA INDIA RUSSIA SOUTH AFRICA KOREA Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

8 Good governance Unbundling Governance: Institutional Pillar Rule of Law Control of Corruption 2.0 BRAZIL CHINA INDIA RUSSIA Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

9 Rule of Law, 2008 Source for map: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June Colors are assigned according to the following criteria: Dark Red: country is in the bottom 10 th percentile rank ( governance crisis ); Light Red: between 10 th and 25 th percentile rank; Orange: between 25 th and 50 th percentile rank; Yellow, between 50 th and 75 th ; Light Green between 75 9 th and 90 th percentile rank; and Dark Green: between 90 th and 100 th percentile (exemplary governance). Estimates subject to margins of error.

10 Good governance Unbundling Governance: Political Pillar Voice & Accountability Political Stability/No Violence BRAZIL CHINA INDIA RUSSIA Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

11 Brazil: Change in Governance Good governance Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 11 Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

12 Russia: Change in Governance Good governance Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 12 Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

13 India: Change in Governance ) Good governance Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption 13 Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

14 China: Change in Governance Good governance Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Source for data: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

15 Rule of Law & National Incomes: 300% Development Dividend of Good Governance Log GDP per capita (PPP), NOR HKG USASGP IRL BHR BEL ITA GRC ESP FRA JPN GBR DEU NLD AUS CAN CHE FINDNK SWE AUT ISL TTO KORSVN ISR SAU CZE CYP NZL SVK PRT HUN EST RUS LBY HRV POLTU LVA CHL MEX ARG VEN PANMNP ROMTUR MYS KAZ BRA BGR URY BWA MUS YUG ECU AZE PERDOM DZA COL UKR SLV ALBJAM BIH SUR THA TUN CHN MKD CRI ZAF ARM NAM GTMPRY BOL SYR GEO EGY JOR HND IDN MARLKA PHL IND KGZ NGACM PAK NIC GUY MNG MDA VNM R TJK KHM CIV SEN KEN TCD BGD BEN LSO ZMB TZA GMB GHA NPL UGA MDG BFA MLI TMP MOZ ETH MWI BDI Low Rule of Law, Source: World Development Indicators & 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June LUX High

16 Log GDP per capita (PPP), Rule of Law & Income per Capita: Governance Deficit & Economic Vulnerability NOR HKG USASGP IRL BHR BEL ITA GRC ESP FRA JPN GBR DEU NLD AUS CAN CHE FINDNK SWE AUT ISL TTO KORSVN ISR SAU CZE CYP NZL? SVK PRT HUN EST RUS LBY HRV POLTU LVA CHL MEX ARG VEN PANMNP ROMTUR MYS KAZ BRA BGR URY BWA MUS YUG ECU AZE PERDOM DZA COL UKR SLV ALBJAM BIH SUR THA TUN CHN MKD CRI ZAF? ARM NAM GTMPRY BOL SYR GEO EGY JOR HND IDN MARLKA PHL IND KGZ NGACM PAK NIC GUY MNG MDA VNM R TJK KHM CIV SEN KEN TCD BGD BEN LSO ZMB TZA GMB GHA NPL UGA MDG BFA MLI TMP MOZ ETH MWI BDI Low Rule of Law, 2008 e.g. Russia with higher incomes Than justified by its Rule of Law: Will Rule of Law improve, Incomes decline, Or be an outlier in the longer term? LUX High 16 Source: World Development Indicators & 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June

17 Rule of Law & Global Competitiveness High Low Global Competitive Index, Low r = 0.88 ZWE CHE DEU FIN DNK SGP JPN NLD HKG CAN KOR GBR TWN FRA AUS AUT NOR BEL MYS ISL ISR IRL QAT LUX NZL SAU CHN ARE TUN BRN BHR KWT PRI OMN CZE EST ESPCHL ZAF ITA RUS IDN IND JOR LTU SVN CYP PRT SVK BRB POL MLT MEX PAN HRV CRI BWA LVA HUN MUS KAZ AZE UKR COL PHLVNMBRA GTM HND SLVSYR BGR MAR MNP TUR ROM GRC PER JAM EGY LKA URY NAM NGA KEN LBY ARG YUG GEO MKD GMB MDA TTO DZADOM ARM SEN PAK MNG VEN ECU CIV KHM KGZ BOL TJK CMR BGD ALB BEN BIH SUR GHA GUY ZMB TZA PRY NIC NPL ETH MLI UGA MDGBFA LSO MWI TCD TMP MRT BDI MOZ Rule of Law, Source: WEF Global Competitiveness Survey 2009 & 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2009, High

18 Transparency & Global Competitiveness High Global Competitiveness Index r = 0.74 CHN ARE ESP TUN THA CZE BHR CYP SVN ZAF LTU JOR SVK RUS ITA MLT IDN IND BWAMUS POL PAN HRV CRI LVA HUN MEX VNM TUR MAR UKR ROM GRC BRA COL PHL LKA URY HND NAM SLV BGR EGY GTM PER GM B MKD YUG NGA KEN GEO TTO ARG JAM DZA DOM PAK GHA VEN ECU BGD BIH ZM B TZA ETH MWI PRYMLI NIC UGA MDG BOL MOZ ZWE TCD SGP MYS CHE DNK SWE DEU FIN NLD HKG JPN CAN KOR GBR AUTTWN NOR FRA AUS BEL ISL ISR IRL NZL LUX PRT EST CHL USA Low Low High Source: WEF Global Competitiveness Survey 2009 Transparency Index 18

19 Unbundling Corruption: What do Firms Bribe for? % of Firms Bribe Frequently Share of Firms that Bribe Frequently Bribery in: Permits Procurement Judiciary State Capture Brazil China India Russia Chile Source: EOS firm survey, WEF countries. Question: In your industry, how commonly firms make undocumented extra payments or bribes connected with permits / utilities / taxation / awarding of public contracts / judiciary? (common never occurs).

20 BRICs & Others: Governance and Competitiveness Rankings Worldwide Country Voice & Acc tblty (of 209) Gov t Effctvnes s(of 212) Rule of Law (of 210) Control Corrptn (of 208) Governa nce Avg (of 211) Doing Business (of 183) Global Compttvnss (of 134) Brazil Russia India China Chile Germany S. Africa S. Korea Source: 'Governance Matters VIII: Governance Indicators for , by D. Kaufmann, A.Kraay and M. Mastruzzi, June World Bank Doing Business Report 2010, 200 EOS firm survey, WEF Global Competitiveness Survey

21 Concluding, for discussion BRICs are Emerging Powers w/ some Governance Deficits which do Matter The Governance/Rule of Law challenges & trends differ across BRICs: Brazil vs. Russia, India vs. China [but also oil issue, Russia and Brazil] Within each BRIC, Strengths & Weaknesses: Brazil: VA/GE vs. CC/RL; Russia: GEvs. VA/RL/CC; India: VA/Transparency/[Judiciary] vs. Exclusion/PV; China: GE/RQ vs VA/CCRL/[PV] FDI angle: Personal & Property Rights Security More globalized rule of law may help? (G20, Int l arbitration, ICC) Yes, we can : Governance/Rule of Law can improve 21 in a decade, & likely to earn large payoff

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