Economic and Political Indicators: Do we Still Need Them?

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Synchronism indicator. Picture: Leo Reynolds/flickr

In a somewhat unexpected turn of events, the presentation of Matthias Busse on Thursday, 1st March entitled ‘Governance in Developing Countries’ at the CIS Colloquium series led to a heated debate on the necessity and validity of indicators, such as those for example developed by the World Bank. Unlike in usual antipositivist development circles, however, the audience engaged in a constructive debate with Busse about his research design concerning the following hypothesis: ‘External drivers of change are less effective than internal ones to improve business regulations’; but how can we discern internal drivers of change from external ones, and how can we measure the well-being of the business regulation framework?

At the beginning, Busse clarified that the project he presented is still in its early stages; yet, he invited disagreement by not being able to explain how internal drivers of change could, even theoretically, be differentiated from external ones. External drivers, such as the IMF or the World Bank, provide conditional loans, which in turn directly affect the so-called internal drivers of change: FDI, press freedom, or trade. Hence, it might be difficult to independently measure and then compare the effect of these two factors on the regulatory framework.

A more stimulating debate emerged from the discussion of the business regulation framework. Busse agreed with the audience that less regulation does not necessarily imply more adequate regulation and claimed that he aims to measure the latter (unfortunately, he has not studied the proposed indicator in detail to establish which one of the two it actually measures). Given the complexity of measuring adequacy in large sample size empirical research, however, we stipulate that it might be more feasible to hypothesize on the density, or degree, of business regulation.

Further acknowledging the general weakness of indicators, Busse highlighted that he aims to complement the econometric model with one or two case studies. In particular, he wishes to see whether a higher score of the indicator means real change in the regulatory framework, or if it is instead a result of the government’s deliberate tinkering with the results. Given that the composition of indicators is openly accessible, governments often choose to selectively work on issues which are emphatically represented in those indicators, with the aim of achieving a better stance vis-à-vis international donors.

A case study might also reveal the extent to which domestic actors are vested in keeping or changing the regulatory framework. As Busse highlighted in one example, large manufacturing companies in Ghana tend to seek special treatment from the authorities, rather than pressing for improvements in the regulatory framework as a whole.

It is clear that Busse’s intention to combine qualitative case studies with large sample size econometric models is a significant step forward from the mainstream’s sheer reliance on macroeconomic and other indicators. Given that Busse left unanswered the crucial questions regarding how to include the qualitative findings in the econometric model, however, it might be just a bit too early to completely abandon the sometimes misleading economic and political indicators.

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