Do better governments have higher economic growth

ABSTRACT A recent book by Gerald Scully argues, after ingenious manipulation of crosscountry data, that what might be called “better governments” have higher economic growth rates. For example, governments that consume less as a proportion of gross domestic product and that grant more political and civil rights grow faster than those that do not, after controlling for some other relevant variables. The present article, which analyzes data from 71 poor countries, confirms Scully's findings. But its abiding message is that despite welcome new data sets and analyses, statistical studies of the effects of government on economic performance are severely constrained. Measurement is a problem; model specification is a problem; and we simply have no data or model to incorporate the many important and interacting ways that government influences economic performance. To do a better job of figuring out how governance affects growth (and other outcomes) we must complement econometric studies with the kinds of researc...