Governance, Economic Growth and Development since the 1960s

Liberal economists have developed a framework of good governance as market-enhancing governance, focusing on governance capabilities that reduce transaction costs and enable markets to work more efficiently. In contrast, heterodox economists have stressed the role of growth-enhancing governance, which focuses on governance capacities to overcome entrenched market failures in allocating assets, acquiring productivity-enhancing technologies and maintaining political stability in contexts of rapid social transformation. The two are not necessarily mutually exclusive, but current policy exclusively focuses on the former, and ignores the strong empirical and historical evidence supporting the latter to the detriment of the growth prospects of poor countries.