Do Governance Indicators Matter for Economic Growth? The Case of Sri Lanka

Abstract

This study attempts to identify the impact of governance indicators on economic growth using time series data for Sri Lanka from 1996 to 2016 published by the World Bank. The Phillips–Perron (PP) unit root test confirmed that all the variables are integrated in order one and suggested the use of cointegration technique to identify the long-run relationship between the variables. All the lag length selection criteria except Schwarz Information Criterion (SIC) advocated the use of one lag as an optimal lag length for this study. Johansen cointegration method detected three cointegrating relationships among the variables. Further, this technique identified a significant and positive relationship between government effectiveness (GE) and gross domestic product per capita (GDPPC) in the long run. This result is in contrast to all the three traditional approaches, such as correlation test, scatter plot and ordinary least squared (OLS), in which they do not identify any clear relationship between them. Moreover, Johansen test found a negative and statistically significant link between political stability and absence of violence (PSAV) and GDPPC in the long run, while all three traditional approaches identified a positive correlation between them. The findings of this study indicate a negative association between rule of law (ROL) and GDPPC in the long run, which coincides with theory, some of the empirical studies and with findings of all three traditional approaches used in this study. Even though OLS did not identify a significant relationship between control of corruption (COC) and GDPPC, Johansen test, correlation test and scatter plot detected a significant and negative correlation between them in the long run as expected by the theoretical evidence. Granger’s causality test identified the bidirectional causality between GE and ROL and unidirectional causality between ROL and COC. However, relationship between governance variables and GDPPC vary based on the estimation methods. These findings suggest that the policymakers need to take considerable attention on the above when they formulate and implement policy to improve GE.

Effect of Governance on Educational Performance in Nepal

“…However, some researchers found some dimensions of WGIs that negatively correlate to educational outcomes and others such as government effectiveness with GDP in South Asian countries, and with higher education enrollment in Latin American and Caribbean counties in the years from 1996-2012 (Zaman, 2016). Vinayagathasan and Ramesh's (2019) study also showed the negative relation between rule of law and GDPPC in the case of Sri Lanka from 1996 to 2016.…”

“…While considering the effect of governance on educational performance, it is revealed as a predictor of socio-economic development of a country such as health, education, economy, livelihood of people and so on. However, there is no uniform results, for example, WGIs are found positive impactful factors on development indicators such as education, Gross Domestic Product Per Capita (GDPPC), human development index (Ahmad & Saleem, 2014;Canfield, 2011;Han et al, 2014;Zaman, 2016) whereas some researchers like Vinayagathasan and Ramesh (2019), Zaki (2016), Briguglio (2016), andAbu-Ismail et al (2016) showed the negative correlation between some indicators of WGIs such as voice and accountability, political stability, rule of law or control of corruption, and average year of schooling or GDPPC. The mixed results on the relation between governance and the development indicators indicate it as a debatable issue.…”

Dynamics of governance, gross capital formation, and growth: Evidence from Brazil, Russia, India, China, and South Africa

“…The result demonstrated the tradeoff between the institution and economic growth also the, geography plays a significant role on economic growth. Vinayagathasan and Ramesh (2019) studied the influence of governance indicators on the growth rate of Sri Lanka during 1996–2016. The study has applied three conventional approaches that include test of correlation, scatter plot, and the technique of ordinary least square (OLS).…”

“…However, over a period, good governance has become an important component of the growth process and has given rise to national and international debates. There are influential studies by scholars and academicians on the relationship between governance indicators and economic growth (Bhattacharjee & Haldar, 2015; Fayissa & Nsiah, 2013; Huang & Ho, 2017; Mauro, 1995; Sharma & Mitra, 2019; Singh, 2019; Singh & Pradhan, 2020; Vinayagathasan & Ramesh, 2019). BRICS can concentrate on improving institutional quality by reducing corruption and increasing the political transparency that is found to be low in the BRICS economies.…”

“…used a cross-sectional panel of SAARC countries from the period 1996-2015 and took the help of Pooled OLS model, random effect model, Hansen J statistic to attain the relationship between economic growth and institution. The result demonstrated the tradeoff between the institution and economic growth also the, geography plays a significant role on economic growth Vinayagathasan and Ramesh (2019). studied the influence of governance indicators on the growth rate of Sri Lanka during 1996-2016.…”