Institutions,Transparency,and Economic Growth

Abstract

The influence of institutions in economic growth has been widely discussed in economic literature. But, the success of these institutions is largely determined by the degree of accountability and of corruption. Institutional failure is less likely if clear responsibilities and accountabilities are shouldered by those who have accepted the responsibility to carry out governance functions, at whatever level in the institution. Many authors argue that one possible solution to these problems, and others like them, lies in improving institutional transparency. Institutional transparency is the basis of good economic governance and the first step in improving accountability and fighting corruption. In this light, the present article considers the role of institutions in economic growth. The article also discusses how the lack of transparency hampers economic growth and how better institutional transparency leads to undermine economic growth. Finally, the article highlights action steps for improving transparency in the functioning of institutions. The present work reveals that improved institutional transparency is certainly needed, but policymakers also need to be clear and careful about the sort of information about an issue, its treatment, and costs to those stakeholders who can least afford it.

Keywords

Transparency institutions governance corruption economic growth

Introduction

The indispensable influence of institutions¹

In economic literature, the term ‘institutions’ has been used as ‘economic institutions’ (Acemoglu, Johnson, & Robinson, 2005), ‘growth-promoting policies’ (Persson, 2005), and ‘social infrastructure’ (Hall & Jones, 1999).

in accelerating economic growth (popular notion: ‘institutions matter’) has been widely discussed in economic literature. Many eminent scholars including John Locke, Adam Smith, J. S. Mill, Doglus North, Arthur Lewis, Dani Rodrik, Daron Acemoglu, Simon Johnson, and James Robinson, and many empirical studies (e.g.,Acemoglu, Johnson & Robinson, 2001; Aron, 2000; Cheng, 2011; Edward et al., 2004; Feng, 2003; Hall & Jones, 1999; Mauro, 1995; Redek & Sušjan, 2005; Rodrik et al., 2004) have emphasized the importance of institutions in economic growth. In fact, market economies cannot function properly without efficient market as well as non-market (Arrow, 1965) institutions.

The success of these institutions is largely determined by the degree of ‘accountability’ and the scale of ‘corruption’ that persists in the governance of these institutions. Institutional failure is less likely if clear responsibilities and accountabilities are shouldered by those who have accepted the responsibility to carry out governance functions, at whatever level in the institution. Similarly, corruption lacerates the purpose of institutions by decay of resources, misdirecting subsidies, or reducing tax revenue, and thereby reduces economic growth. Most arguably, institutional corruption undermines ‘trust’ in institutions. Trust influences institutional performance just as institutional performance shapes the public’s trust in their institutions and in one another. A number of studies have shown recently that the income level and real growth depend upon institutional trust—trust greases the wheels of exchange. On the contrary, lack of trust in institutions has been arguably the main reason for economic crisis.

The theoretical literature in economics has made numerous efforts in this direction and has stressed the need to design the institutions which are accountable to the stakeholders and competent to control the corruption. Many authors argue that one possible solution to this intricacy and others like this lies in improving institutional transparency. Institutional transparency is the basis of good economic governance and the first step in improving accountability and fighting corruption. Institutional transparency is also regarded as an important precondition for macroeconomic fiscal sustainability, good governance, and overall fiscal rectitude. Further, it increases efficiency in allocation of resources by reducing principal–agent problems and discouraging rent seeking instead of productive activities. Most importantly, it improves the functioning of markets and prevents market failure (Stiglitz, 2000; Stiglitz & Wess, 1981).

Evidently, the core purpose of many transparency-led initiatives is to strengthen the accountability of institutions and governmental agencies and to ensure that ‘the persons with public responsibilities are answerable to the people for the performance of their duties’. In many countries, the lack of transparency in rules, laws, and processes creates a fertile ground for corruption. Transparency International’s Global Corruption Barometer 2013, which analyzed almost 70 institutions across six countries (India, Bangladesh, Maldives, Sri Lanka, Nepal, and Pakistan), reported that none of the institutions assessed were found to be free from corruption risks. This grim situation has compelled the government to accept the need of strengthening transparency in institutions and the necessity of making adjustment and instituting reform.

In this light, the present article starts with revisiting the economic literature considering the role of institutions in economic growth. The article also discusses how the lack of transparency hampers economic growth and how better institutional transparency leads to strengthen economic growth. Finally, the article highlights action steps for improving transparency in the functioning of institutions. In this process, the article examines the experience of a number of countries in grappling with the problems of corruption, accountability, and poor institutional transparency.

Institutions and Economic Growth²
2
See Ogilvie and Carus (2014) and North (1989) for a detailed review.

Linkage in Literature

The issue of economic growth received considerable attention particularly after the Second World War. Contributions from different economic schools presented their own view on what determines economic growth paths and how stable these growth paths are. The classical economic literature emphasized the rate of expansion in physical inputs, such as, capital and labor, as being the prime basis of growth (Rodriguez & Sachs, 1999; Sachs & Warner, 1995; Toman, Pezzey & Krautkramer, 1995). While the neoclassical growth approach recognizes the worth of technology, it focuses on prices, outputs, and income distributions in markets determined through supply and demand. The prime goal of neoclassical economic theory is to provide efficient allocation of scare resources. Neoclassical literature contends that the particular set of institutions in an economy ‘does not matter’ in the sense that equilibrium prices and the allocation of resources are unaffected by specific institutional structures. Thus, the traditional growth theory has concentrated on technology, transaction cost, and most importantly property rights³

Property rights play an overwhelmingly important role in the entire literature on the institutions and economic growth.

instead of highlighting the functional significance of real-world institutions. Then the ‘theory of firm’ came to predominance as part of a broader movement known as institutional economics, which developed as a response to the perceived inadequacies of neoclassical approach.⁴

For example, in neoclassical economics, a factory may be assumed to be able to emit pollution at its discretion; all that mattered was the input of supplies and output of goods. Institutional economics, however, will recognize that there may be regulatory limitations to a factory’s emission and pollutions and will factor in such constraints (Lau, 2011). In this way, institutional economics incorporates a theory of institutions in economics.

Coase 1937, Coase 1960) was one of the first to point out that in addition to production cost of the usual sort, one must also consider transaction costs in explaining the institutions like the firm. Coase theorem maintains that without transaction costs, alternative property rights’ assignments can equivalently internalize conflicts and externalities. Therefore, a comparative institutional analysis arising from such assignments is required to make recommendations about internalization of externalities and institutional design, including law and economics. Institutional economists like Williamson (1975) have further developed Coase’s theory of the firm through a deeper analysis of different forms of contracts (as cited in Braendle).

Since the late 1990s, the view that poor-quality institutions are the root cause of economic problems in the developing countries has become widespread (Chang, 2011). At the same time, many developed counties consider ‘better’ institutions⁵

There is no agreed definition of what these ‘better’ institutions are.

as a conditionality to encourage democracy and prevent crisis. More recently, the growth literature has begun to emphasize the role of institutions⁶

When we talk about ‘institutions’, we are referring to something much broader than simply the set of easily recognizable legal entities. According to the World Bank Report (2004), the notion of an institution embodies several elements: formal and informal rules of behavior, ways and means of enforcing these rules, procedures for mediation of conflicts, sanctions in the case of breach of the rules, and organizations supporting market transactions. Acemoglu et al. (2005) defined institutions as a combination of three interrelated concepts: (a) social institutions, (b) political power, and (c) political institutions. North (2005) defined it as ‘the rules of the game in a society or, more formally, are the humanly devised constraints that shape the human interaction’. Rodrik (2000) defined five types of market-supporting institutions: property rights, regulatory institutions for macroeconomic stabilization, institutions for social insurance, and institutions of conflict management.

in either fostering or restoring the process of economic growth (Acemoglu, Johnson, & Robinson, 2001; North, 1990; Plattaeu, 2000; Rodrik, Subramanian, & Trebbi, 2004; Weingast, 1995). The Nobel Prize-winning economist Douglass C. North first brought to the fore the role of institutions in economic development. Highlighting the role of institutions in economic governance, North says in his famous book Institutions, Institutional Change and Economic Performance (1990):

I wish to assert a fundamental role for institutions in societies: they are the underlying determinants of the long-run performance of economies—Third World countries are poor because the institutional constraints define a set of pay-offs to political/economic activity that do not encourage productive activity.

The modern proponents of the ‘primacy of institutions’ are Dani Rodrik, Daron Acemoglu, Simon Johnson, and James Robinson. This school analyzed broader institutional environment and the role of the states and attracted new adherents with the creation of International Society for New Institutional Economics (ISNIE) in 1997 (Claude & Mary, 2012).

These institutional thoughts were progressively transformed into powerful conceptual and analytical instruments that seeded a vigorous base of empirical research. Indeed, there is by now a huge amount of cross-section econometric studies showing that there is a correlation between the institutions and economic growth across countries. For example, Hall and Jones (1999) regress output per worker on a proxy measure of ‘social infrastructure’ constructed from indicators of government anti-diversion policies and openness to international trade. Meanwhile, Acemoglu et al. (2001) regress gross domestic product (GDP) per capita on two alternative measures, one an index of protection against expropriation and the other an indicator of constraints on the executive. Both studies find apparently large effects of institutions—as proxied—on the long-run growth outcomes (Wendy, Mark, & Paul, 2010). Aron (2000) surveys the studies which correlate indices of development to institutional ones: Seven studies find a positive correlation with property rights and enforcement, 10 with civil liberties, 10 others with political rights and democracy, four with institutions for cooperation (e.g., clubs and associations), and fifteen find a negative correlation of development with political instability. Feng (2003) also expressed that political institutions do matter for economic growth by constraining individuals decisions in their marketplace. The study by Oslon, Sarna, and Swamy (1998) finds evidence suggesting that institutional factors are strongly linked to total factor productivity. Similarly, Dowson (1998) also has found a direct effect of institutions on total factor productivity and an indirect positive effect on investment. Siddiqui and Ahmed (2009) also suggest a strongly casual relationship between institutional quality and economic performance. Redek and Sušjan (2005), Knack and Keefer (1995), Mauro (1995), Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2002), Acemoglu, Johnson, Robinson, and Thaicharoen (2003), and Chang (2010) also document large cross-country differences in economic institutions, and a strong correlation between these institutions and economic performance.

Labeling the Role of Institutions in Economic Growth

Institutions perform a number of economic functions in a market system that affect efficiency and equity (as cited in Subramanian, 2007). As highlighted by Rodrik (2008): ‘markets require institutions because they are not self-creating; self-regulating; self-stabilising, or self-legitimising’. These institutions support economic activity and economic transactions by protecting property rights⁷

Protection of property rights holds a high level of importance in any economic system, as without these types of property rights (or more generally, legal entitlements), people have much less incentive to invest in capital, and they have much more of an incentive to loot and steal. Moreover, without investment, and with the need to divert more scarce resources to protection, economic growth inevitably falters.

(market cannot work effectively, if people do not have well-established, well-enforced, and well-protected property rights), enforcing contracts⁸

Fair, transparent, and low-cost enforcement of contracts can open the way for competition, and for the participation of low- and middle-income people, and allow exchange among strangers by reducing the inherent risk in transactions. It enables individuals without connections to trade and make investments in their enterprises so that they can accumulate wealth. In countries with poorly developed contracting institutions, those with the lowest economy, gender, and ethnic status are most disadvantaged (Satu & Patrick, 1997).

(a proper set of contracting institutions can also have powerful equality promoting effects), and taking collective action⁹

Much private economic activity depends on an adequate provision of public goods and the control of public ‘bads’. This includes not just physical but also institutional and organizational infrastructure. Provision of social safety nets, facilitation of internalization of externalities, and the control of public bads, for example, management of common pool resources, all involve problems of collective action to avoid free riding; they are multiperson prisoner’s dilemmas (Dixit, 2009).

to provide physical and organizational infrastructure (Dixit, 2009). When property rights are secure, owners of capital are more likely to invest, all other things being equal (Wiggins & Davis, 2006). For example, stronger Intellectual Property Rights’ (IPRs) protection stimulates investment in knowledge creation and consequently causes higher growth (Sumanjeet, 2015). In a similar vein, some theories basically argue that ‘liberalized’ institutions that protect private property rights most strongly and provide maximum economic freedom (especially business freedom to seek profits) will best promote investment and thus economic growth e.g., (Acemoglu et al., 2001; Chang, 2011; La Porta, Lopez-de-Salinas & Schleifer, 2008). Some studies (Binswanger, Deininger, & Feder, 1995; de Soto, 2002) also argue that property rights is one of the most effective ways to improve the lives of the poor, who often lack property rights. Property rights are also important in the sense that they assign entitlements to factors of production and may also affect the bargaining power of different groups in a society. Indeed, secure property rights facilitate economic transactions, ensure efficient and sustainable resource use, allow for evolution of effective credit markets, and improve business climate.

Institutions regulate and/or substitute for markets (Demirguc, Laeven & Levine, 2004; Dowson, 1998). The need for these institutions arises from some kind of market failure (Samuela, Derricka, & Scotta, 2014) and/or other social objectives, such as, income distribution, that societies wish to fulfill (Subramanian, 2008). Most experts agree that the current crisis stemmed from a lack of institutional regulation of financial players. Added to this, institutions are deemed to play a very central role in shaping the behavior of other players in an economic setting. For example, currently in the world, there are some very huge Multinational Companies (MNCs), which have overwhelming market presence and a lot of financial control. Such companies have the power to influence key aspects of the market, such as, demand and supply, as well as pricing. It is not uncommon nowadays for huge companies to buy or merge with small companies which are supposed to be competitors in the same market. Big companies also have the power to influence consumer preferences through advertisements in the media. Similarly, as highlighted by Hall and Jones (1999), in the absence of ‘good’ institutions, some private economic agents allocate part of their resources to the protection of their goods instead of devoting their resources completely to increase their investments. By doing so, the level of economic productivity diminishes.

These institutions also determine the extent to which those in power are able to expropriate the economy’s resources to their private advantage (Luca, 2012). Unequal institutions strongly limit development by reducing the capacity of individuals to access resources, expand production, and increase their incomes (Hulme, 2010; Luca, 2012; Williamson, 2000). Institutions, such as, central banks, or fiscal rules stabilize markets by ensuring low inflations and macroeconomic stability and help to avoid financial crisis (Acemoglu et al., 2003; Calderón, 2004).

They condense information asymmetries¹⁰

See Wright (2002) for a detailed discussion.

as they channel information about market conditions, goods, and participants. Where information asymmetries are high, resources are not put to their most highly valued uses, and it is also possible to make outsized profits by cheating others. Latridis (2010) investigated the effects of adopting International Financial Reporting System (IFRS) upon the quality of financial information. The study concluded that the standards strengthened the quality of data through decreasing the revenue practices of management and improving the significance of financial information in investment choice. Democracy as a political regime reduces the risk of distorsive policies implementation. In developing countries, the implementation of distorsive policies has a deep sociopolitic origin and is due to the weakness of political institutions. In fact, in poor countries where leaders have the entire decision-making power and are not subject to any political or institutional constraint, these leaders do not hesitate to undertake socially inefficient economic policies to become rich, enrich their partisans, and to ensure they remain at the head of the nation. In a democracy, the leaders are usually subject to institutional constraints that do not allow them to implement policies of their choices. Most importantly, in a democracy, elections are regularly organized. In this situation, the leaders have no interest to implement distorsive policies like high inflation, which is likely to negatively affect the population welfare; otherwise, they risk to be sanctioned during the next elections. In this case, democracy exerts a dissuasive effect on political leaders for distorsive policies’ implementation (Mijiyawa, 2008).

Added to this, they restrict the action of politicians and interest groups, making them accountable to citizens. Economic institutions also matter for economic growth because they shape the incentives of key economic actors in society, in particular, they influence investments in physical and human capital and technology (Dias & Tebaldi 2012), and the organization of production. Although cultural and geographical factors may also matter for economic performance, differences in economic institutions are the major source of cross-country differences in economic prosperity and growth (Hasan, 2007). Institutions also have a profound influence on the pattern of economic growth and the distribution of rewards within economies and societies and thereby affect the levels of poverty. More subtle are the ways in which institutions governing transactions and economic cooperation allow those without immediate access to factors of production to obtain credit, rent land, trade, and to form small companies or cooperatives, and thereby earn their livelihoods (Wiggins & Davis, 2006). Dollar and Kraay (2003) investigated that as trade and institutions go together, it is difficult to trace partial effects of trade and institutions on economic growth in cross-section studies, while they have shown substantial partial effects of trade, and also a modest role of institutions, on economic growth through decadal dynamic regressions. Finally, institutions legitimize markets through mechanisms of social protection and insurance, and importantly, through mechanisms for redistribution and managing conflicts.

In the light of this discussion, it can be articulated that institutions are the essential cause for economic growth. Institutions affect the echelon of income through the distribution of political power, the security of property rights, by generating income opportunities, fostering innovation, encouraging human and physical capital accumulation, and other ways. Moreover, most economic processes are carried out within institutions, formal (e.g., judiciary, central bank, laws, bureaucracy, and police) or informal (e.g., social norms, ethics, and attitudes).¹¹

The judiciary, bureaucracy, and police are key institutions (also known as formal institutions) in facilitating the development of markets. However, the effectiveness of formal rules, such as, penal codes, the rule of law, and democratic governance, depend on informal institutions, such as, norms and attitudes and existing levels of social capital, or the patterns of interaction that individuals assume in any shared activity, understanding where informal institutions come from, and how they change is crucial to understanding how the interaction between formal and informal institutions can be harnessed to effect desirable policy goals (de Soysa & Jonannes, 2007).

How Non-transparency in Institutions Affects Economic Growth

Considering the role of institutions in growth, over the recent years, a wider consensus that institutions ‘matter’ has emerged among the researchers, policymakers, and development practitioners. As a result, in developing and underdeveloped countries, the influence of institutions has been increasing over the past two decades. This growing influence has also been accompanied by growing criticism of policy prescriptions by these institutions. A common element of much of the criticism directed at the institutions is that they suffer from a ‘democratic deficit’, in terms of both their own internal governance and their role in limiting the policy options of member states. This democratic deficit is in part derived from the secrecy surrounding many of their operations (lack of transparency¹²

The issue of (the lack of) transparency of government activity has recently received a lot of attention beyond academic circles. For instance, the IMF published a book in 2001 titled Manual on Fiscal Transparency containing recommendations on how budgetary institutions and national accounts should be organized in order to enhance transparency. The OECD published a similar volume in 2000 titled Best Practices for Budget Transparency. Fiscal transparency is perceived to be essential for informed decision making, for guaranteeing a minimal accountability, and for maintaining fiscal discipline.

). In this kind of system, key documents are kept hush-hush or are released only after commitments have been made, rather than while the agreements are being negotiated. Lack of information weakens domestic democratic governance processes, reduces the development rate of the institutions, causes social and economic damage, and estranges interested parties. Lack of access to information also means a lack of accountability, which facilitates the atmosphere for ‘the misuse of publicly entrusted power for private gain’. In other words, lack of transparency generates opportunities for public officials to exploit their office for private gain. This can mean not only financial gain but also non-financial benefits (i.e., patronage, nepotism, etc.). Studies and surveys showed that the most corrupt sector in developing countries is the public–government sector. According to the 2010 Global Corruption Barometer, 54 per cent Indians reported that they greased the palm of authorities to get things done. Furthermore, a lack of transparency makes it harder to use incentives to make public officials act cleanly.

Lack of institutional transparency intimately relates to accountability aspect, and weak accountability mechanisms tend to facilitate corruption. At its most basic, lack of transparency in institutions signifies reticence of governance system through unclear processes and procedures and uneasy access to public information to the citizens.

This string ultimately hurts accountability for the individuals and organizations handling resources or holding public office. Where there is a lack of transparency and accountability, corruption will flourish.

Corruption in all its manifestations undermines and contradicts all the democratic elements. It embodies the antidemocratic culture, grasps self-interest, self-centeredness, particularism, unfair privilege, exploitation of weakness and loopholes, unscrupulous advantage of the weak, and all manner of shady dealings (Caidena, 1997). Corruption also dampens economic growth through many channels. Most importantly, it discourages investment by raising cost of operation and creating uncertainty (Campo et al., 1999; Shleifer & Vishny, 1993; Wei, 2000). Mauro (1995) provides tentative empirical evidence that corruption lowers investment. David (2012), Habib and Zurawicki (2002), Gyimah (2002), and Keefer and Knack (1995) also obtain broadly similar results. In addition, discouraging investments in operation or maintenance, further undermines the quality and sustainability of the initial investment (Asiedu & Freeman, 2009; Dixit & Pindyck, 1994).

If corruption remains unconstrained, it becomes endemic in which case private interest (individual and group) competes with the national interest. Where private interest dominates, the state is weakened and is unable to perform its core functions—the state will then be exhibiting signs of fragility or instability, with violent conflict as one of the possible symptoms. Economic instability, usually represented by the inflation rate, may inhibit inward Foreign Direct Investment (FDI), because investors prefer to invest in economies with a lesser degree of uncertainty and in more stable economies (Samuel, 2007).

Further, corruption and governance are closely interlinked (Carasciuc, 2001; Kaufman & Kraay, 2003; Lederman, Loayza, & Soares, 2005; Lewis, 2006). For example, corruption in social services makes them less affordable and leads to creation of alternative services in the informal sector. Corruption undermines good governance, and bad governance breads corruption and is also associated with distortion of government budgets, inequitable growth, social exclusion, and lack of trust in government authorities. Inefficiency of formal governance institutions leads to creation of informal institutions that substitute for the functions that the formal ones are unable to perform.

Of particular relevance to developing countries is the possibility that corruption might reduce the effectiveness of aid flows through the diversion of funds from their intended projects. The possible reason is that the donor countries increasingly focus on the issue of good governance, and in some cases in which governance is judged to be very poor, some donors scale back their assistance (IMF, 1995). The result is public infrastructure of inferior quality, which leads to inefficiencies in transportation with all its spillover effects for public and private sector as well as individuals. Evidence shows that corrupt countries also generally spend more public funds (Daniel, 2012) on payrolls of public officials (Colin Nicholls, Daniel, Bacarese, & Hatchard, 2006), which is also associated with lower levels of economic growth.

Corruption can also have a number of economic impacts on business. Corruption increases the uncertainty of doing business because it erodes the rule of law and is associated with high levels of bureaucratic red tape (Mauro, 1995; Vito & Hamid, 1997). In fact, corruption is one of the worst enemies of business because it can result in far-reaching consequences, including total closure of the company. In the presence of corruption, businessmen are often made aware that a bribe is required before an enterprise can be started and, in addition, corrupt officials may also lay claims to one part of the proceeds from the investment. Transparency International, the German non-governmental organization determined to fight corruption, asked 2,471 senior business executives working for companies in 26 developed and developing countries for specific information on the subject; 22 of them ranking as the wealthiest or most economically dominant showed the likelihood of their companies to bribe when seeking foreign investors (Halter, de Arruda, & Halter, 2009). Therefore, businessmen interpret corruption as a species of tax. In addition, they also face secrecy and the uncertainty that the bribe taker may not fulfill his part of the bargain. Both the tax and the uncertainty will diminish incentives to invest. The vice can be perpetuated by an individual or a clique of employees within a business organization. Corruption in business involves misappropriation of funds, bribery, misuse of office by company officials, and dishonesty in financial matters. Its magnitude notwithstanding, corruption can hurt the image of the business, discourage investors, and jeopardize its profitability. Because corruption entails improper use of the available resources, it can jeopardize the efficiency of a business organization. The US economist Nouriel Roubini (2013) said in his address to the 44th General Assembly of the World Trade Centres in Mumbai:

In India corruption¹³

According to a research detailed in Britain’s The Economist, global corruption watchdog Transparency International reports (as cited by Micheal, 2015) more than half of Indians (54 per cent) admit to paying a bribe, a higher proportion than in Nigeria (44 per cent) or Indonesia (36 per cent).

has hurt businesses.¹⁴

The Economist reports: Private firms have cut investments; a fall in investment from 17 per cent of GDP in 2007 to 11 per cent in 2011 is one reason why GDP growth has slumped to 5 per cent, the lowest level for a decade. And ineffective efforts to deal with corruption seem only to have made things worse. India’s cranky legal system, its overlapping investigative agencies and its raucous media have meant that responses to the problem may have done as much to paralyse business in general as to punish wrongdoers. Few senior people go to jail; but officials fear being accused of malfeasance, so many think the safest course of action is to make no decisions at all.

There has been an excessive level of corruption in India that has created a negative sentiment for consumers and businesses. A wide range of administrative restrictions are not helping business confidence. (Roubini, 2013)

Corruption can also damage the probability of success for small businesses. In many countries, enterprises, and especially small enterprises, are forced by public officials to make payments to make things happen or to keep bad things from happening. Often, these payments must be made if the enterprise is to remain in the business. As they pay much of their earnings, it limits their ability to grow, explore new markets, and create jobs. In most countries, small business are the main engine of growth. When they do not grow, economies languish and unemployment increases. This is true in most countries but especially in developing countries and, ever more, in economies in transition. In addition, when the news about corruption or corrupt business professionals breaks, customers lose respect and trust, requiring company officials to spend their valuable time and resources to check the fallout and restore confidence of clients. Legal fees, penalties, and public relations efforts redirect valuable resources form the core business and lead to an inefficient use of company financial resources and personnel.

Fiscal distortions attributed to corruption have attracted more attention in recent years (Vito, 1998). As corruption creates fiscal distortions (Miller & Russek, 1997) and also redirects money allocated to income grants, eligibility for housing or pensions and weakens service delivery, it is usually the poor who suffer the most. Income inequality has increased in most countries experiencing high levels of corruption. Another cost to an economy affected by corrupt activities includes capital flight, which means that funds required to acquire assets abroad shrink a country’s savings pool (Us Swaleheen, 2008) that could otherwise have been invested in the local economy. In addition, corruption damages public trust, undermines corporate credibility, and hurts the consumer who pays the price for a lack of sound risk management and individual bankers gambling for personal gain.

Transparency International in its 2011 report noted, ‘Corruption distort markets and creates unfair competition. Companies often pay bribes or rig bids to win public procurement contracts. Many companies hide corrupt acts behind secret subsidiaries and partnerships. Or they seek to influence political decision-making illicitly.’ Others exploit tax laws, construct cartels, or abuse legal loopholes. Private companies have huge influence in many public spheres. These are often crucial—from energy to healthcare. So it is easy to see how corruption in business harms taxpayers’ interests.

Corruption may also bring about loss of tax revenue when it takes the form of tax evasion or the improper use of discretionary tax exemptions. In 2011, the Philippines government lost an estimated $3.85 billion in tax revenue due to illicit financial flows. When the total losses from illegal financial transactions are calculated from 1960 to 2012, over $400 billion was lost by the Philippines government, according to a report by Global Financial Integrity. During the 52-year period, the country lost $1,329 billion due to various crimes, government corruption, and tax evasion activities (Associated Press, 2014). By affecting tax collection, corruption may have adverse budgetary consequences. Alternatively, where corruption takes the form of the improper use of directed lending at below market interest rates by public sector financial institutions, corruption may result in an undesirably lax monetary stance. Corruption may affect the composition of government expenditure (Mauro, 1996). Corrupt government officials may come to prefer those types of expenditure that allow them to collect bribes and to keep them secret. The projects whose exact market value is difficult to determine lead to more lucrative opportunities for corruption (Mauro, 1998).

In addition to this, non-transparency also relates to the level of bureaucratic inefficiency within the government and poor enforcement of the rule of law. These two factors can pose severe barriers to governance (Drabek & Payne, 1999). The Organization for Economic Co-operation and Development (OECD) (1997), for example, shows that bureaucratic inefficiency and weak rule of law impede economic activities by imposing additional costs on economic agents. Delays in licensing, the inability of the courts to enforce contracts, and the capricious and arbitrary enforcement of rules and regulations all reduce economic efficiency and effectiveness. In countries where transparency is lacking, institutions cannot be fully accountable toward each other (horizontal accountable), nor toward the citizen and the civil societies (vertical accountable). This means, in effect, that a huge section of the global population lives under the state where they lack basic protection of their human rights, such as, freedom from violence and harm, protection of property, legal identity, the full ability to influence institutions, legal reforms, and social and economic policy. This is particularly true for women, people living in poverty, minorities, and other marginalized people in many countries. Millions of people continue to live in countries in which measures and institutions to hold the government accountable for its actions are weak or absent altogether (Sida, 2013). In short, lack of transparency in economic institutions is perchance the root cause of democratic deficits, lack of accountability, bureaucratic inefficiencies, and high corruption which further hampers the economic growth in numerous ways.

How Transparency in Institutions Strengthens Economic Growth?

From the above discussion, it is clear that the key components contributing to an environment of good economic governance are accountability and an enabling corruption-free environment for growth which basically depend on the intensity of transparency in the operation of governance institutions. Transparency endorses accountability and provides information to the citizens about what their government is doing. Consequently, when governments know that their citizens are informed and are watching, their incentives to formulate good policies grow. The report by the Commission on the ‘Measurement of Economic Performance and Social Progress’¹⁵

Full report available at http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf

defines the transparency of a government as a strong instrument for good government performance (Sida, 2013; Stiglitz, Sen, & Fitoussi, 2009). Studies by Hale (2011) and Benkler (2003) also show that more and better quality information leads to more effective policy planning, program implementation, and accountability at all levels. At its most basic, transparent governance signifies

an openness of the governance system through clear processes and procedures and easy access to public information for citizens [stimulating] ethical awareness in public service through information sharing, which ultimately ensures accountability for the performance of the individuals and organisations handling resources or holding public office. (Su Kim, Halligan, Cho, Oh & Eikenberry, 2005)

Djankov, Glaeser, La Porta, Lopez de Silanes, and Shleifer (2004) point out that a more transparent government allows the economy to incur lower social costs as the government undertakes the task of controlling economic disorder. In addition, since transparency is likely to be influenced by what the authors call civic capital, the greater the level of transparency, the lower the social costs of controlling disorder at the efficient choice (as cited in Stanley & Bunatari, 2012).

Transparency is also considered essential for controlling corruption in public life (Halter et al., 2009; Kolstad & Wiig, 2009). It is based on the intuitive logic that secrecy breeds corruption and sunlight is the best disinfectant. Transparency helps not only to inform the public about development ideas and proposals but also to convince citizens that the public agencies are interested in listening to their views and responding to their priorities and concerns. This in turn enhances the legitimacy of the decision-making process and strengthens democratic principles. Transparency also influences civic engagement in a more direct manner. Responsiveness often holds the key to successful involvement of citizens and the private sector. Governments that share their assessments and plans with citizens and seek their views on a regular basis can be far more effective in implementing development programs with the participation of stakeholders (Parigi et al., 2004).

Thus, transparency can help to encourage active engagement of the private sector and civil society in public affairs, thereby confirming the changed role of the government as an enabler and catalyst of access to, rather than provider and controller of, goods and services. People also look to government institutions/agencies to work on their behalf and provide oversight on matters that significantly impact their quality of life. A government is incumbent upon fulfilling this responsibility most effectively when its activities are open and transparent to citizens. With visibility into government actions and spending, people are more likely to participate in the political process and hold government officials accountable for their actions. When citizens engage in the issues that affect them, they can help to ensure that power and public funds are used wisely and are representative of their interests (Randeniya, 2010).

Transparency gives people in developing and poor countries the information they need to hold their governments accountable and improve their lives. Developing countries can only achieve equitable and inclusive growth, provide good public services, and help lift their citizens out of poverty if they are able to make the most of their resources. This includes mobilizing domestic resources, primarily tax revenues from citizens and private companies including natural resource revenues in many developing countries, as well as maximizing the impact of aid from donor governments and other organizations. Yet in most developing countries, there is far too little information available about these revenue streams, about how governments spend their resources, and about what results they achieve (TheNewAfrica, 2014). In many cases, it is impossible to ‘follow the money’—limiting people’s ability to hold governments and companies to account for their actions, to keep corruption in check, and to fight poverty.

Improving transparency in financial institutions is an imperative step toward greater accountability to stakeholders: citizens affected by them as well as member states. Without transparency, citizens can neither monitor nor influence decisions and expenditures that affect their daily lives. Businesses cannot know for certain what the rules are, leaving opportunities for manipulation and distortion in decision making in processes, such as, allocation of contracting bids—an area prone to corruption risks. It improves market efficiency by facilitating price discovery, uncovering hidden costs, and more generally, by ensuring a level playing field and fairer market conditions. It also provides protection for investors by removing information asymmetry and allowing better analysis of risk associated with financial products (Transparency International, 2011).

Transparency in financial institutions¹⁶

Banks and insurers are severely underperforming when it comes to transparency, according to a report by the anticorruption NGO Transparency International.

enables dynamic entrepreneurs to access financial resources necessary to start and grow their businesses. In the absence of transparency, people with a groundbreaking idea or business plan face resistance, resulting in an inhospitable environment for entrepreneurship (Randeniya, 2010). Transparency in international financial institutions is also critical for the governance aspect to make sure that everybody is following the rules. This is especially true when it comes to financial relationships between countries because there is really no legal enforcement that will make countries follow the rules. The only thing that can be done is to make sure that everybody else knows what they are doing so that they can put pressure on any country that is not playing by the rules. Such pressure will actually keep countries in line. In addition to this, international finance has long been hampered by the fact that in a lot of cases, the rules for investing or trading with a particular country are not clear and in many cases they will simply change as the country sees fit. This is hardly the way to encourage trade since nobody is going to invest their money if the rules are not clear and stable. Transparency makes it difficult for countries to just change their rules on a whim.

With regard to budget (or fiscal) transparency, empirical studies have found that it improves fiscal performance (Alt, Lassen, & Rose, 2006; Kohn, 2011), lowers sovereign borrowing costs (Glennerster & Shin, 2008), and decreases corruption (Reinikka & Svensson, 2004). The absence of fiscal transparency can be associated to the countries characterized by corruption, takeover of regulatory frameworks and bodies, and division. Certainly, avoiding corruption is at the core of a transparent fiscal framework. As Folsher (1999) points out:

the institutionalization of transparency in budget practices creates the demand for those types of government systems which are key to combating corruption: namely an independent, effective and efficient auditing system, an internal accountability system and an information system that produces timely and accurate information.

The International Monetary Fund (IMF, 2007) maintains that budget transparency helps to highlight potential risks to the fiscal outlook that should result in an earlier and smoother fiscal policy response to changing economic conditions, thereby reducing the incidence and severity of crises¹⁷

Lack of transparency lies at the heart of the current worldwide economic crisis by preventing accurate appraisal of the global problem with subprime mortgages and other collateralized debt obligations, credit default swaps, and derivative contracts, while also deterring lending by impeding the ability of banks to assess the quality of assets.

(Bekaert, Ehrmann, & Fratzscher, 2011; Claessens, 2009). Others argue that governments have a moral obligation to their citizens to be transparent about their handling of taxpayers’ money and describe this as a ‘basic right’ (Fölscher, Krafchik & Shapiro, 2000). In short, the case for fiscal transparency is persuasive and widely supported (Heald, 2003; Wehner & de Renzio, 2012). From an economic perspective, transparency has been traditionally identified as the key and the basic solution to ensure the good functioning of financial markets¹⁸

Transparency benefits financial systems in at least three ways. It helps to fight fraud and corruption. It improves market efficiency by facilitating price discovery, uncovering hidden costs, and, more generally, by ensuring a level playing field and fairer market conditions. It provides protection for investors by removing informational asymmetry and allowing better analysis of the risks associated with financial products.

and economic stability¹⁹

Intuitively, the release of a greater volume of more precise information in a more timely manner seems beneficial because it reduces asymmetric information and uncertainty in financial markets. Information about the financial stability framework and public evaluation of national balance sheets against yardsticks on international codes and standards offers investors an opportunity to assess the risk better and arrive at more informed decisions. Moreover, greater clarity about financial stability policy potentially simplifies the task of monetary and fiscal policy by establishing clear lines of responsibility and objectives. In an environment of greater trust, communication by the central bank allows for greater flexibility to act.

(Maijoor, 2011; Nier, 2005). Lack of transparency was a feature of the buildup to the Mexican crisis of 1994–1995 and to the emerging market crises of 1997–1998 (Chari & Kehoe, 2004). In these crises, markets first became uncertain as they were kept in the dark about important developments (Furman & Stiglitz, 1998), and then were unnerved as a web of interlocking problems was revealed. Inadequate economic data, hidden weaknesses in financial systems, and lack of clarity about government policies and policy formulation contributed to a loss of confidence that ultimately threatened to undermine global stability. The financial crisis of 2007–2008 is a story of mass ignorance of transparency in the functioning of financial institutions. It deserves to be treated as a powerful lesson on the importance of information transparency in a market economy and, by extension, on the crucial role to be played by a free press. The world has learned the hard way that without transparency, markets not only fail to fulfill their primary function in allocating capital efficiently but also can become agents of destruction (Micheal, 2013). Highlighting the role of transparency and good governance, the General Assembly in its resolution 63/303 of July 9, 2009 expressed:

We recognize the continued importance of good governance along with national ownership of policies and strategies. We commit ourselves to the promotion of effective and efficient economic and financial institutions at all levels—key determinants of long-term economic growth and development. We also commit ourselves to accelerating our collective recovery from the crisis through improved transparency, eradication of corruption and strengthened governance.

Transparency promotes the orderly and efficient functioning of financial markets by making participants better informed. It can enhance economic performance by encouraging more widespread discussion and analysis of policies. It enhances the accountability of policymakers and it should also improve the credibility of their policies. Rosengren (1999) argues that transparency reduces the cost of crises; Jordan, Peek, and Rosengren, (2000) suggest that transparency improves market discipline in crises; Summers (2000) considers transparency as the best way to prevent crises and an effective policy response to crises; and Vishwanath and Kaufmann (2001) regard transparency regulation as a part of the institutional structure that enhances financial stability. Perhaps the most rigorous argument for increased transparency is provided by Giannetti (2003), who shows how asymmetric information between investors and banks explains contagious banking crises both within a country and across countries. The study by Cordella and Yeyati (1998) revealed that banking crisis is less likely to occur where transparency and regulatory disclosure are high.

Last but not the least, transparency in corporate functioning builds trust. Transparency and trust combine, in turn, to support sustainable growth. By putting credible social, environmental, and ethical data in people’s hands, they can make more informed—and therefore better—decisions. That is good for them—and good for sustainable companies too. Consumers will (hopefully) buy more of their products, investors will purchase more of their stock, employees will work harder, and so on.

How to Strengthen Transparency in Institutions?

Thus, transparency inhibits corruption and promotes good governance. Increased transparency of government revenue and expenditure flows, as well as strengthened enforcement efforts against bribery and corruption, contribute to achieving desired goals and to increase integrity in government decision making, thereby ensuring that resources, including development assistance, achieve their intended purposes. In addition to this, the disclosure of all information ensures the proper accountability of institutions to their boards, regulators, and other stakeholders, improves market efficiency, enhances financial and economic stability, lowers financing costs, and lowers the risk profile. A core principle of good regulatory governance, transparency creates credibility for decisions and helps foster sustainable investment in infrastructure. But the real issue is—How can policymakers and regulators best improve institutional transparency?

Measures to enhance institutional (regulatory) transparency have been, or are being, adopted in many countries worldwide. The United Kingdom’s move toward regulatory transparency occurred initially under pressure from companies and consumers, then through new laws introduced to improve regulation. In UK, the government regularly publishes open data on central and local government spending, senior staff salary details, and how the government is fulfilling the objectives. This helps people monitor government performance, make informed choices on the use of public services, or hold the government to account. In May 2010, Britain’s prime minister wrote to all government departments instructing them to become more transparent and open by releasing data on finance, resources, and procurement in an open, regular, and reusable format (Cabinet Office, 2014). In 2010, the Bribery Act was introduced to update and enhance UK law on bribery. The introduction of this new corporate criminal offence placed a burden on the companies to show they have adequate procedures in place to prevent bribery. In 2014, UK passed the historic Transparency Law for Oil, Gas, Mining and Logging Companies. As a requirement of this Act, such companies must now publish data on all their payments to the governments around the world (Miller, 2014).

The US government has already taken a number of initiatives to strengthen transparency. In September 2010, President Obama challenged members of the United Nations General Assembly to work together to make all governments more open and accountable to their people (Chopra & Sunstein, 2011). To meet that challenge, in July 2011, President Obama joined the leaders of seven other nations in announcing the launch of the Open Government Partnership²⁰

A global effort to encourage transparent, effective, and accountable governance. In just 2 years, the OGP has grown from eight to more than 60 member-nations that have collectively made more than 1,000 commitments to improve the governance of more than 2 billion people around the globe.

(OGP). The Obama administration also released the second US Open Government National Action Plan, announcing 23 new or expanded open-government commitments that will advance these efforts even further. Highlights of the second National Action Plan included ‘We the People’, Freedom of Information Act (FOIA) Modernization, The Global Initiative on Fiscal Transparency (GIFT), Open Data to the Public and Participatory Budgeting (Nick & Gayle, 2013). Mexico passed a federal law on transparency and access to public information in 2000. In an unprecedented effort to address the issue of ‘transparency’, the Mexican Congress gathered more than 250 people from 24 states—including national and subnational parliamentarians, public officials, civil society representatives, academics, journalists, and other interested citizens—in Mexico City in March. In a week-long series of meetings and panels, the legislators discussed the steps the Congress was taking to increase transparency and involve civil society in the legislative process (Holsen, 2012). On February 7, 2009, Bolivia established the Ministry of Institutional Transparency and Fight against Corruption. The Ministry is responsible for the formulation and execution of policies, programs, and projects; the development of draft legislation; the facilitation of coordination between governmental bodies at all levels; the promotion of the participation of civil society; the facilitation of access to information on public administration and expenditure; and the compliance with international anticorruption conventions and agreements. In the Republic of Korea, Transparency International, Korea, developed the Korean Pact on Anti-Corruption and Transparency (K-PACT) in 2004. This Pact uses a coalition approach to fight corruption and promote transparency. In a March 2005 ceremony to launch K-PACT, 148 civil society leaders, as well as 120 major figures from public and private sectors, political parties, and civil society, publicly pledged their commitment to fight corruption and strengthening transparency.

The Government of India is also not lagging behind in the race of passing legislation toward strengthening transparency. The Indian government has introduced ‘Right to Information Act (RTI)’, ‘The National Data Sharing and Accessibility Policy (NDSAP)’, ‘The Whistleblower Bills’, ‘The Electronic Delivery of Service (EDS) Bills’, ‘Public Procurement Bill’, ‘Public Service Bill’, ‘Citizen Charter’, and many e-governance projects, such as, ‘Bhoomi’, ‘e-Choupal’, and ‘e-procurement’, to improve transparency in the functioning of various institutions (Sharma, 2013). Many regulators voluntarily adopted transparent processes to foster investment and competition. Thus, all governments around the world are moving toward transparency in fits and starts, and no one seems to be able to point out key tools that will accelerate the process. But there are some important guidelines including a set of proposed tools as well as trade-offs that need to be weighted in institutional transparency for better economic growth.

The roles and objectives of institutions need to be clearly set out in primary legislation and in instruments, such as, contracts. Such documents/contracts should be placed in the public domain. In a weaker institutional environment, this is less likely to happen voluntarily so provisions need to be stated in regulatory documents, legislations, or contracts. It is not only up to the public to request information. Public bodies should be obliged to proactively publish and disseminate information through public meetings, computerization and record management, e-government initiatives, public education tools, including media campaign, school programs, public speaking engagement, etc., and public participation. Stakeholders’ characteristics (literacy level, lack of understanding the issues, multilanguage population, and remote and isolated communities) need to be taken into account in deciding appropriate means by which to disseminate information.

Democratic governance process depends on the public being aware of how their state and institutions work and make the decisions. Therefore, steps need to be taken to inject a culture of openness (open government), particularly in countries emerging from repressive and secretive regimes. This involves training public officials and sanctions for those who unlawfully refuse access. Promotion of open government also involves informing the public about what their rights are and how they can realize these rights. This can be done through media. A sound and growing body of literature exists in economics, political science, communication research, and other disciplines supporting the impact of the media on participation, transparency, and ultimately on accountability. The media has a key role to play in informing individuals, providing an inclusive and critical platform for public dialogue and debate, stimulating interpersonal communication, and ultimately, policymaking that benefits a greater number of people. In short, to promote transparency and citizen engagement, more government data, documents, tools, and processes should be publicly available.

Requests for information should be processed rapidly and fairly and an independent review of any refusals should be available. Access to information laws is frequently undermined by laws, such as, secrecy laws. Laws which are inconsistent with the principle of maximum disclosure should be amended or repealed. Stakeholders should be provided with an idea of ‘Chances of failure’ and how uncertainty over a future event should be handled. In weaker institutional arrangements, there is a greater risk from policy shifts and hence investors may need more details regarding such mechanisms to reduce risk of uncertainty.

Transparency, accountability, and citizen participation are prerequisites for building trust and confidence in government, making it more efficient and responsive to the needs of the citizens. Moreover, it is this trust and confidence that build strong nations and maintain economic stability. As a result, governments have faced increasing pressure, particularly in developing countries, to reform, become more transparent, and govern in a more participatory way. It is only natural that the option of using Information and Communication Technology (ICT) in public processes, including those relevant to participation and transparency, has been embraced by many as a possible solution. Indeed, e-government comes with many promises. E-government has made information from legislative meeting minutes to budget proposals to map-based information available to the public. Several case studies²¹

For example, the cases on Beijing’s Business E-park, computerized interstate checkpost in Gujarat, VOICE: online delivery of municipal services in Vijaywada, India, Philippine custom reform present on the World Bank website report less corruption as one of the benefits.

of e-government applications from developing countries report some impact on reducing corruption. Many governments have chosen to go online in departments, such as, customs, income tax, sales tax, and property tax, which have a large interface with citizens or businesses and are perceived to be more corrupt. Procurement by government is also seen to be an area where corruption thrives. For poor communities, there can be particular benefits of e-government: saving money in dealings with government, improving the equality of treatment and participation of all members of the community, and improving the planning and implementation of relevant development projects.

There is also a strong need for a transparent business environment by simplifying the tax system, reducing discretion in dealing with the private sector, and reinforcing oversight to promote investment. Simplified tax regimes would not only be more transparent but would also raise revenue collection while reducing the costs of collection. Regulations affecting business operations need to be streamlined with minimal discretion to promote fairness, permit easy entry and exit of firms, and reduce uncertainty faced by businesses.

First, evaluate how closely transparency metrics are linked to the policy outcomes they seek. There are many things that can be measured and incorporated into a transparency system that have little relation to ultimate objectives. For example, some users might assess nursing home facilities based on capital expenditures, but if those expenditures primarily reflect cosmetic investments (e.g., expenditures in entry areas or visitor amenities) rather than health care-related commitments, a disclosure system might send the wrong signals. Second, identify if there are third-party intermediaries that help users to understand disclosed information. If present, who are they and how aligned are their incentives with those of the intended users? (Archon, Mary, & David, 2009). For instance, the system of financial transparency relies on a large ecology of analysts and interpreters of that information (Archon et al., 2009). Some of these third-party interpreters have conflicts of interest that cause them to systematically misinterpret information for end users. Last but not the least, examine how disclosure systems work in tandem with other regulatory tools. Specifically, how do transparency policies complement other regulations to further a policy goal?

Concluding Remarks

The rule of ‘transparency’ is not merely a technical question of governance processes or institutional design. It is the outcome of democratic governance and potential tools to achieve economic growth in modern societies. Transparency ensures that information is available and it can be used to measure the authorities’ performance and to guard against any possible misuse of powers. Under a governance structure that is truly transparent, effective, and accountable, citizens have access to crucial information about how the government operates, establishes priorities, and makes decisions. In that sense, transparency serves to achieve accountability, which means that authorities can be held responsible for their actions.

In many countries, the lack of transparency in rules, laws, and processes creates a fertile ground for corruption. Rules are often confusing, the documents specifying them are not publicly available, and, at times, the rules are changed without proper publicized announcements.²²

For example, in its most recent Open Budget Index, the International Budget Partnership found that national budgets in 74 of the 94 countries surveyed failed to meet the most basic requirements of accountability and transparency. Forty of the studied countries ‘[…] release no meaningful budget information’. The same survey found that only 7 of the 94 countries included in the study release ‘extensive budget information’, a figure emphasizing the universal character of the problem (International Budget Partnership, 2010).

Laws and regulations are written in such a way that only lawyers or experts can understand these documents. Some documents are linguistically opaque about important aspects thus leaving ground for different interpretations. Such a non-transparent institutional setting not only hampers economic growth but also undermines citizens’ ability to enjoy their rights. In many countries, poor people unable to receive even basic services, such as, education, health care, and sanitation.²³

Delivery of these services directly translates into improved well-being and has been shown to increase individual income.

Getting services to the people, particularly to the poor, often is hobbled by corruption and inefficiency. Corruption and inefficiency are closely related to transparency (lack of transparency) aspect. Therefore, one possible solution to these problems and others like them lies in improving institutional transparency. Existing literature also divulges that there is an inverse relationship between corruption and transparency. Without transparency and accountability, trust will be lacking between a government and those whom it governs. The result will be social instability and an environment that is less than conducive to economic growth. There is a strong sense that transparency and accountability mechanisms—both public and private—were largely inadequate in mitigating or even preventing the recent financial crisis, in spite of the fact that accountability is high on the agenda of many organizations. Not surprisingly, calls for government transparency have gained increased support in the context of the public and private failures contributing to the financial crisis, as well as the scale of government intervention and spending that the crisis has induced. But measures to introduce and improve transparency cannot simply be imported or transferred from one system to another.

Institutional transparency requirements should instead take account of five important factors: (a) identification of intended users and cost and affordability of transparency, (b) understanding the types and scale of corruption and the degree of transparency, while creating a baseline against which progress in improving transparency can be measured, (c) policy to improve access to information for democratic decision making, (d) promoting ethics, professionalism, and integrity, and (e) introducing institutional reform for the purpose of streamlining and simplification of administrative procedures and structural innovations to promote participation and accountability. In case where institutional frameworks are weak, there may be a much greater need for a clear codification of roles and objectives. It is also important to evaluate the trade-offs between releasing information and the benefits expected from such release, and not to ‘overdo’ transparency. It is also important to consider that just making information available and accessible will not reduce corruption if such conditions and accountability as media circulation, education, and free and fair elections are weak. Last but not the least, transparency policies with successful track records, but implemented blindly, without taking into account local issues, may prove ineffective and lead to additional costs to those stakeholders who can least afford them. Convincingly, there are also dangers in systematically favoring transparency over privacy. A thoughtful democratic institution should strike a balance between both values, which sometimes compete and sometimes reinforce each other.

Acknowledgments

The author wishes to thank Gursharan Dhanjal and Sukhpal Singh for their constructive criticisms and comments on the draft version of the paper presented by the author at 31st Skoch Summit on Re-Thinking Governance held on March 25–26, 2013, at New Delhi. A special gratitude to the reviewers for their helpful comments.

Footnotes

Author's Biography

Sumanjeet is MCom; MPhil; PG Diploma in Cyber Law and PhD. He is presently working as Assistant Professor at Department of Commerce, Ramjas College, University of Delhi, India. He has authored more than 110 research papers for various national and international journals of repute and presented papers in many national and international conferences. He is active editorial member/assistant editor of many international journals. He is associate editor of International Journal of Innovation and Digital Economy and Asia Pacific Journal of Management. He is the former editor of International Journal of Business and Engineering Research. He is one of the reviewers of many leading publications including Elesvier, Springer, SAGE and IEEE. He has widely travelled India and abroad. He has been awarded with Rashtriya Vidhya Sarswati Award and Rajiv Gandhi Excellence Award, 2008 for his outstanding contribution in the field of ICT and Economics. He has won Highly Commended Paper Award at the Emerland Literati Network Awards for Excellence, 2013 (UK). His areas of research are Law & Economics and ICT for development.

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Institutions,Transparency,and Economic Growth

Abstract

Abstract

Keywords

Introduction

Institutions and Economic Growth 2 2 See Ogilvie and Carus (2014) and North (1989) for a detailed review. Linkage in Literature

Labeling the Role of Institutions in Economic Growth

How Non-transparency in Institutions Affects Economic Growth

How Transparency in Institutions Strengthens Economic Growth?

How to Strengthen Transparency in Institutions?

Concluding Remarks

Acknowledgments

Footnotes

Author's Biography

References

Institutions and Economic Growth²
2
See Ogilvie and Carus (2014) and North (1989) for a detailed review.

Linkage in Literature