Chapter-2

Theories on Governance,
Review of Literature, and Research Gap
 27

THEORIES ON GOVERNANCE,
REVIEW OF LITERATURE, AND RESEARCH GAP

A systematic study of the subject Economics when traced back, starts from the
Ancient Period (up to 4 CBC) - Hebrews, followed by Greeks and Romans and
contemporary Kautilya’s period in India, later the Medieval Period (from 4 th CBC to
1500); Mercantilism (1500-1776); Physiocracy (1970-1776); Classicism (1776 -
1870); Utopian Socialism (1800-1848), German Historicism (1845-1915), Marxism
and Socialism (1850- to date), Neo-Classicism (1870-to date), Monetary Economics
(1900-1945), Institutionalism (1898- to date), Welfare Economics (1905-1970),
Keynesian Economics (1933- to date), Growth and Development (1945- to date).

Looking to its dimensions and diversities, complexities and comprehension,

establishing a theoretical base, to the concept Governance is quite difficult,
complicated and challenging too. Going to the annals of history its significance or the
view points on governance can be traced back to civilization itself. However, with the
available authentic records, one could start the discussion from Ancient Period and on.
During all the periods - from the Ancient period, medieval period to the modern
period, the economists have expressed their views of the role and importance of
government in promoting economic development.

There could be different socio-economic structures or systems of governance

during different time periods and across different countries – be it capitalism,
socialism, communism, or a mixed economic system, no one disputes to the fact that
there was some form of government and governance that existed in all the countries.
Due to the problems and challenges that the global economy is facing today viz.,
poverty and inequality and its associated issues, the role of the government (more than
the type) is being viewed with caution. Government and the way they govern their
economies is a subject matter discussed, deliberated, debated, disputed since more
than half of the world population is facing extremely difficult situations, which
sometimes is going out of control. Thorough introspection has brought out a concept,
known and used implicitly till 1990s, considered crucial now i.e., Governance.

The implementation structure operates within a notion of governance about

which a level of consensus is said to have been reached. There is a pervasive, shared,
global perception of governance as a topic far broader than ‘government’; the
 28

governance approach is seen as a “new process of governing, or a changed condition

1
of ordered rule; or the new method by which society is governed”. Similarly, in the
scholarship that has followed the ‘Reinventing Government’ themes of public
effectiveness; much has been written on New Public Management practices by which
governance theory is put into action. 2 Tracing the Theoretical base to the concept
Governance is quite difficult and complicated too.

Governance and Development are words which are used extensively by social
scientists, policy makers, administrators and economists which have become all-
embracing and complex. Development now is not just socio-economic change but
regarded as a process of improving the well-being of people, raising their standard of
living, improving their education and health, and also opening out new and equal
opportunities for better and more varied life. Development is a process, and hence
highly correlated with the quality of governance. Since development is a buzz word
and important to everyone, the growing focus on issues of governance has been given
new thrust due to collapse of the totalitarian states in Eastern Europe and call for
multiparty democracy in developing countries of Asia, Africa and Latin America. One
of the major issues in development is the extent to which it is influenced by the State -
i.e., the principal governing institution.

As mentioned in the previous chapter, Governance is the act of exercising

control over the actions of the people. The World Bank in its report defined
governance as the “exercise of political power to manage a nation’s affairs”. 3 At the
general level, governance refers to theories and issues of social coordination and the
4
nature of all patterns of rule.

More specifically, governance refers to various new theories and practices of

governing and the dilemmas to which they give rise. Theories of governance typically
open up the black box of the state. Policy network theory, rational choice theory, and
interpretive theory undermine reified concepts of the state as a monolithic entity,
interest, or actor. These theories draw attention to the processes and
1
Gerry Stoker (1998) "Governance as Theory: Five Propositions", International Social Science Journal, Vol. 50,
Issue.50, pp. 17-28
2
Jo Ann [Link], (March 12, 2001), Theories of Governance and New Public Management: Links to
Understanding Welfare Policy Implementation, Presentation at the Annual Conference of the American Society
for Public Administration, New Jersey, p.1
3
World Bank, (1989) Sub-Saharan Africa: From Crisis to Sustainable Growth, Washington D.C.,
4
Mark Bevir, Governance as Theory, Practice, and Dilemma p.1
 29

interactions through which all kinds of social interests and actors combine to produce
the policies, practices, and effects that define current patterns of governing. In
addition, the relationship of state and society changed significantly in the late
twentieth century.

Theories on Governance

The question of governments’ proper role in encouraging growth is one of the

oldest in economics. The public good should be the welfare of the society states Rig

Veda. Kautilya’s Arthashastra, written in the 4thc BC, is the first known Indian
treatise on public administration. He positioned the State as an institutional necessity
for human advancement. Based on this premise, he outlines almost everything that the
State should do and described how it should be managed for the maximum happiness
of its citizens. The commonly believed Philosophy is – public welfare lies in the
happiness of the masses. Therefore, not only the administrators but all the individuals
and institutions should keep the happiness and welfare of the society in proper
perspective in all their deeds or decisions.

At the international level, the views of various economists on the role of

institutions/government viz., Adam Smith, David Ricardo, J.S. Mill, Socialist Karl
Marx, Institutional Economists- Thorestin Bunde Veblen, Wesley Clair Michell, John
Kenneth Galbraith, Douglass North; Welfare Economists-Vilfredo Pareto, Arthur
Pigou, [Link] Mises, Oscal Lange, Kenneth Arrow, James M. Buchanan; John
Maynard Keynes and Keynesians and Alvin Hansen, Growth and Development
theorists Joseph A. Schumpeter, Robert M. Solow, Ragner Nurkse, Arthur W. Lewis,
Theodore Schultz are important.

During the 18th and 19th centuries, several prominent theorists began
commenting on the economy, uncover theories which could be applied to markets in
order to promote a better society and put forth their views and ideas that would
influence how governments handled economic matters of which, Adam Smith, David
Ricardo, T.R. Malthus are prominent ones.

Adam Smith, a Scot and philosopher (1723-1790) considered the founder of

modern economics, during whose time philosophy was an all-encompassing study of
human society in addition to an inquiry into the nature and meaning of its existence,
 30

led Smith to a conclusion that collectively the individuals in society, each acting in his
or her own self-interest, manage to produce and purchase the goods and services that
they as a society require, with a mechanism by which self-regulation occurs “the
invisible hand” in his ground-breaking book, An Enquiry into the Nature and Causes
of Wealth of Nations published in 1776, the year American’s Declaration of
Independence.

Smith presented many instances for the existence of ‘invisible hand’ with each
producing what is correct and buying what one needs without consulting one another
or without the king’s men telling them how much to produce, i.e., in other words, the
free market economy in action. In doing this, Smith founded what is known as
classical economics, the key doctrine being laissez faire, with the attitude by
government towards the marketplace allowing the ‘invisible hand’ to guide everyone
in their economic endeavours, creating the greatest good for the greatest number of
people, and generate economic growth. By delving into the dynamics of the labour
market, wealth accumulation and productivity growth paving the way for generations
of economists to think about and expand upon the issues propounded.

Smith believed that, “government should limit its activities to administer

justice, enforcing private property rights, and defending the nation against
aggression.” In a sense, it was a total free market system, guided by Classical
Economics (i.e., Say’s Law), and introduced the theory of ‘the invisible hand’ and less
interaction by the government in the market, ie., laissez faire.” Adam Smith advised
certain interventions viz., government expenditures on defence against foreign
invasions, on the provision of systems of justice, public investment in public works,
(roads, public bridges, safe harbours, and canals), national educational system,
taxation on the richer sectors of the population, care for sufferers with diseases, postal
service for public use, quality control on goods, run official mint to guarantee the
purity of the coinage, central bank to manage government debt, set interest rates.

Smith opposed such government interventions which held back mutually

advantageous trade from which peaceful trading countries could increase the opulence
of their people. Many of the trade items added not from the economic principles or
national security but from the lobbying of legislators and influencers on behalf of
domestic merchants and manufacturers who profited by narrowing the supply and
 31

widening the higher-priced market for their goods. At the same time, Smith also
observed that certain domestic laws such as award of monopolies for production and
processing and selling made matters worse prohibiting the competing good tradesman.

The richest countries in the world today still engage in such fallacious policies,
not just against each other, but also against the poorest countries, for which the richer
countries' taxpayers spend small fortunes each year in subsidies, gifts and donations,
not to make them richer but to ameliorate their poverty induced by less trade than they
could otherwise enjoy.

Smith who embarked on an academic career at the age of 15, student of logic
and moral philosophy, widely travelled with the Duke and got to know about the ideas
of great thinkers then such as Voltaire, Rousseau, Quesnay and Turgot, wrote on
Theory of Moral Sentiments (1759) and Wealth of Nations (1776). The philosophy he
advocated in these works continues to influence economic thought even after more
than two centuries (225 years) after his demise in 1790.

David Ricardo, born in London (1772-1823) was a British political economist,

being influenced by the writings of Smith, believed that economies functioned best
when they were left alone by governments and was an early advocate of free trade.
One of his most influential legacy is his theory of comparative advantage, which
suggests that a nation should concentrate its resources solely in industries where it is
most internationally competitive and trade with others and obtain products no longer
produced nationally so that both the nations gain from trade. Though challenged by
Joan Robinson and Piero Sraffa, it was the theoretical forerunner for the push towards
globalization and promoted by World Trade Organization (WTO) assuming that
increased trade will lead to economic prosperity and was opponent of protectionism.

Thomas Robert Malthus (1766-1834) born in England had enduring effect on

economics, and as cited by Charles Darwin, Malthus’ Essay on the Principles of
Population as inspiration for his theory of natural selection. According to Malthus,the
food production increases in an arithmetic proportion while population in geometric
proportion, which the world resources are not capable of handling, and if offspring
were not regulated, eventually famine would become a global problem. The global
 32

population problem in some countries and in some population explosion is leading to

many critical associated problems, has been posing a great challenge and unattained
or partially attained Millennium Development Goals are evidence to it.

John Stuart Mill (1806-1973) a British Philosopher, political economist and

civil servant was an influential contributor to social theory, political theory and

political economy. He has been called as the most influential philosopher of the 19 th
Century for his conception of liberty justified the freedom of the individual in
opposition to unlimited state control and political rights and warned about the problem
of “who will guard against the guardians.” Mill thought that the only constitutional
limits on government power, a system of checks and balances, and a vigorous legal
and political protection of basic rights could keep those who use the government for
their own benefits at bay. Mill in the second paragraph of the work
- On Liberty (1859), further states that societies need a system of legal and political
rights and constitutional checks and balances in order to prevent the stronger, and
their allied, from oppressing ordinary people in a perpetual struggle between “Liberty
and Authority.”

The struggle between Liberty and Authority was the most conspicuous feature
in the portions of history with which we are relatively familiar, particularly in Greece,
Rome, and England. In a way, it continues to linger its existence even to this day with
a clash between the political representatives i.e., the Authority and the Poor i.e., the
Liberty from poverty.

Karl Marx, (1881-1883) was a German economist and political scientist. Marx
looked at capitalism from a pessimistic and revolutionary view point. Where Adam
Smith saw harmony and growth, Marx saw instability, struggle, and decline. Marx in
1867 (Das Kapital), stated that profits come from exploiting labour – that is, from
underpaying workers for the value that they are actually creating. The class struggle
due to exploitation of labour, would ultimately destroy capitalism (in which two-class
system of few wealthy capitalist and mass underpaid, underprivileged workers
existed). Marx predicted the fall of capitalism and movement of society towards
communism, in which ‘the people’ i.e., the workers own the means of production and
thus, have no need to exploit labour for profit.
 33

Marx thinking originated by Utopian Socialism (Robert Owen: 1771-1858,

father of Co-operation), influenced by the ideas of Ricardo, Malthus, and Friedrich
Engels,had a tremendous impact and major influence on many societies particularly

on the former USSR and China and large part of the Second World in the 20 th century
and partially in a Mixed Economy of India.

In practice, however, two events have undermined Marx’s theories – (i)

centrally planned economies have proved far less efficient in producing and delivering
goods and services than the capitalist system, and (ii) worker’s income have actually
risen over time, which undercuts the theory of labour–bring exploited in the name of
profit but sharing the growth of the economy, i.e., profits. Though the theories have
been discredited, they have a point to assert in a two-tier system of “have’s” and
“have not’s”. Details on the theories concerned to The Communist Manifesto can be
obtained from The German Ideology. The bourgeoisies control the economy, therefore
they control the State. The State is an instrument of class rule.

In the case of the nations which grew out of the Middle Ages, tribal property
evolved through various stages – feudal landed property, corporative movable
property, capital invested in manufacture – to modern capital, determined by big
industry and universal competition, i.e., pure private property, which has cast off all
semblance of a communal institution and has shut out the State from any influence on
the development of property.

The independence of the state is only found nowadays in those countries

where the estates have not yet completely developed into classes, where the estates,
done away with in more advanced countries, still have a part to play, and where there
exists a mixture, in which no one section of the population can achieve dominance
over the others (Germany). The most perfect example of the modern State is North
America.

The twentieth century witnessed the rise of all kinds of new, and often formal,
approaches to social science. These theories led people to see the world differently
and then to remake the world. The theories introduce some of the general ways of
thinking that have helped to inspire the recognition and formation of the new
governance; and show how theories that may have been designed for other uses have
 34

since then been modified to accommodate the new governance. Pluralists have long
challenged the concepts of the State. Empirically they point to the complex
interactions, processes, and networks that contribute to governing. In addition, more
radical and normative pluralists challenge mainstream concepts of sovereignty and
argue for a greater dispersal of authority to diverse social organizations.

The Aggregate Demand theory popularized by Keynes with the approach to

tackling the fluctuations in the Business Cycles and macroeconomic measurement and
policy approach emphasized the Role of Government Approach. The focus on
Resource Allocation, with emphasis on Externalities (Pigou, Lindhal), Resource
Conservation approach (Hotelling) greatly influenced Efficiency Approach; with
marginal productivity theory of distribution (J.B. Clark) influencing the Equity
Approach. Capital Growth Theory (influenced by Malthus, Bohm-Bawreck)
developed by Schumpeter, Knight, Harrod, and Hicks had influence on the Growth
Approach.

John Maynard Keynes, a British economist and financial genius (1883-1946)

strongly held the view that government should help out the economy. Keynesian
economics were first presented in his book - The General Theory of Employment,
Interest and Money, published in 1936, during the Great Depression. Keynesian
economists often argue that private sector decisions sometimes lead to inefficient
macroeconomic outcomes which require active policy responses by the public sector,
in particular, monetary policy actions by the central bank, and fiscal policy actions by
the government, in order to stabilize output over the business cycle. It advocates a
mixed economy – predominantly private sector, but with a role for government
intervention during recessions. Keynesian economics served as the standard economic
model in the development nations during the latter part of the Great Depression,
World War II, and post-war economic expansion (1945-1970s). The advent of the
global financial crisis in 2008 has caused resurgence in Keynesian thought. The
interpretations of Keynes that followed are contentious and several schools of
economic thought claim his legacy.

Keynes’ theory overturned the mainstream thought of the time i.e., everything
that is produced will eventually be consumed once the appropriate price is found to it,
which perception is reflected in Say’s Law of Markets and in the writings of David
 35

Ricardo, and brought about a greater awareness of structural inadequacies: problems

such as unemployment, for example, are not viewed as a result of moral deficiencies
like laziness, but rather result from imbalances in demand and whether the economy
was expanding or contracting. Keynes argued that because there was no guarantee that
the goods that individuals produce would be met with demand, unemployment was a
natural consequence especially in the instance of an economy undergoing contraction.

Keynes saw the economy as unable to maintain itself at full-employment level

and believed that it was necessary for the government to step in and put underutilized
savings to work through government spending. According to the theory, government
spending can be used to increase aggregate demand, thus increasing economic
activity, reducing unemployment and deflation. Keynes argued that the solution to the
Great Depression was to stimulate the economy – inducement to invest – through
some combination of reduction in interest rate (monetary policy) and government
investment in infrastructure (fiscal policy). Investment in infrastructure by the
government injects income into the economy by creating business opportunity,
employment and demand and reversing the effects of the aforementioned imbalance.
Government source of funding for this expenditure by borrowing funds from the
economy through the issue of government bonds, and because government spending
exceeds the amount of tax income that the government receives, and creating what is
called as fiscal deficit. Central conclusion of Keynesian economics is that, in some
situations, no strong automatic mechanism moves output and employment towards
full employment levels.

The new classical macroeconomics movement, which began in the late 1960s
and early 1970s, criticized Keynesian theories, which New Keynesian economics has
sought to base Keynes’ ideas no more rigorous theoretical foundations. Keynesians
believed that it is appropriate for governments to incur expenditure in excess of
taxation revenues during periods of economic stagnation such as the Great
Depression. Keynes’ ideas influenced Roosevelt who adopted some aspects of
Keynesian economics, especially after 1937. To many, the true success of Keynes in
policy can be seen the onset of World War II, which provided a push to the world
economy, removed uncertainty, and forced the rebuilding of destroyed capital. His
 36

theory and ideas became almost official in social-democratic Europe after the war and
in the U.S in the 1960s which suggested that active government policy could be
effective in managing economy. Keynes argued that governments should solve
problems in the short-run rather than waiting from market forces to do it in the long
run, because, “in the long run, we are all dead.”

Institutional Economics: German Historical School had their influence on

institutionalists viz., Veblin, Galbraith and Ostrom (Nobel Laureate). Institutional
economics focuses on understanding the role of the evolutionary process and the role
of institutions in shaping economic behavior. Its original focus lay in Thorstein
Veblen’s instinct-oriented dichotomy between technology on the one side and the
‘ceremonial’ sphere of society on the other. Institutional economics emphasizes a
broader study of institutions and views markets as a result of the complex interaction
of these various institutions (for example, individuals, firms, states, social norms etc.,)

th
A significant variant is the new institutional economics from the later 20
century, which integrates subsequent developments of neoclassical economics into the
analysis. Law and economics has been a major theme since 1924 paving the way for
legal foundations to the system. Behavioral economics is another hallmark of the
institutional economics based on what is known about psychology and cognitive
science, rather than simple assumptions of economic behavior.

Major contributors include famous but diverse economists as Thorestein

th
Veblen, Wesley Mitchell, and John [Link] in the first part of the 20 century.
Some do consider Karl Marx as one belonging to the institutionalist tradition while
others disagree. Traditional institutionalism emphasizes the legal foundations of an
economy and the evolutionary, habituated, and volitional processes by which
institutions are erected and then changed. Emphatically, traditional institutionalism is
in many ways a response to the current economic orthodoxy; and it is based on the
fundamental premise that economics cannot be separated from the political and social
system within which it is embedded. Some of the authors associated with this school
include Robert Frank, Elinor Ostrom, John Kenneth Galbraith and Gunnar Myrdal.

Thorstein Veblen (1857-1929), a Norwegian immigrant, came from rural mid-

western American family, wrote his first and most influential book on Theory of the
 37

Leisure Class (1899), in which he analyzed the motivation in capitalism to

conspicuous consumption of riches as a way of demonstrating success, along with the
focus on conspicuous leisure. Through the 1920s and after the Wall Street Crash of
1929, Veblen’s warnings of the tendency for wasteful consumption and the necessity
of creating sound financial institutions seemed to be relevant. He became the
precursor of current evolutionary economics.

John R Commons (1862-1945) coming from mid-western America, underlying

his ideas, consolidated in Institutional Economics (1934) was the concept that the
economy is a web of relationships between people with diverging interests. There are
monopolies, large corporations, labour disputes and fluctuating business cycles which
have an interest in resolving these disputes. He devoted much of his time to advisory
and mediation work on government boards and industrial commissions.

Wesley Clair Mitchell (1874-1948), an American economist taught by Veblen

and others focused on empirical work on business cycles. Clarence Ayres (1891-1972)
was a principal thinker of institutional economics developed on the ideas of Veblen
claimed that technology was always one step ahead of the socio-cultural institutions is
considered to be a ‘techno-behaviourist’. Adolf A. Berle (1895-1971) was one of the
first authors to combine legal and economic analysis. He detailed the evolution in the
contemporary economy of big business, and argued that those who controlled big
firms should be better held to account to the shareholders of the company. To him ‘the
stakeholders toil not, neither do they spin, to earn [dividends and share price
increases], but they are beneficiaries by position only and justification for their
inheritance … can be founded only upon social grounds (justification turns on the
distribution as well as the existence of wealth).

John Kenneth Galbraith (1908-2006) was more advanced than the earlier
institutional economists, worked in the administration of Roosevelt, was critical of
th
orthodox economics throughout the late 20 century. In The Affluent Society (1958),
Galbraith argues voters reaching a certain material wealth begin to vote against the
common good. In an age of big business, it is unrealistic to think only of markets of
the classical kind. Big businesses set their own terms in the marketplace, and use their
combined resources for advertising progrmmes to support demand for their own
products. As a result, individual preferences actually reflect the preferences of
 38

entrenched corporations, a ‘dependence effect’, and the economy as a whole is geared

to irrational goals.5 In The New Industrial State, he argues that economic decisions are
planned by a private bureaucracy, a techno-structure of experts who manipulate
marketing and public relations channels. They recruit governments to serve their
interests with fiscal and monetary policy. In Economics and the Public Purpose
(1973), Galbraith advocates social democracy as the solution, with nationalization of
military production and public services such as health care, disciplined salary and
price controls to reduce inequality and hamper inflation.

New Institutional Economics developed with the new developments in the

economic theory of organizations, information, property rights, and transaction costs
made an attempt to integrate institutionalism into more recent developments in
mainstream economics.

Recognising the role and importance of governance, the Nobel Academy in

2009 awarded the Nobel Memorial Prize in Economic Science to Elinor Ostrom for
her analysis of economic governance, especially the commons; and Oliver E
Williamson for his analysis of economic governance, especially the boundaries of the
firm. Elinor Ostrom has demonstrated how common property can be successfully
managed by user associations. Oliver Williamson has developed a theory where
business firms serve as structures for conflict resolution. Over the last three decades,
these seminal contributions have advanced economic governance research from the
fringe to the forefront of scientific attention. Economic transactions take place not
only in markets, but also within firms, associations, households, and agencies.
Whereas, economic theory has comprehensively illuminated the virtues and
limitations of markets, it has traditionally paid less attention to other institutional
arrangements. The research of Elinor Ostrom and Williamson demonstrates that
economic analysis can shed light on most forms of social organization.

Ever since the depression of 1930s and the World War II, the role of the
government has gained significance. Due to the pressure of population, scarcity of
natural resources, increase in the demand and expectations of the people, the
government need to shoulder heavy responsibility as provider of safety nets, social

5
John Kenneth Galbraith (1998) The Affluent Society, Houghton Mifflin, Harcourt.
 39

security, and infrastructure facilities – especially health and education with hopes and
aspirations. The failure of the government in providing good governance to its
teeming millions can lead to its failure and collapse of the social structure.

While the West was firmly embedding its new political institutions, or
contesting the growing forces of socialism which had overpowered parts of the feudal
and aristocratic west, the intelligentsia in India was grappling with the challenge of
the first major task ahead of it i.e., independence, and people like Raja Ram Mohan
Roy (1772-1833) were beginning to articulate elements of these political arguments,
no one was in a position to explore and articulate new insights. However they did
catch up with key liberal ideas and began implementing some of these advances
thought through their new demands for greater freedom in India.

Other contributors to political thought in 19th century India included Dadabhai

Naoroji (1825-1917), Mahadeo Govind Ranade (1842-1901), Gopal Krishna Gokhale
(1866-1915), Pheroze shah Mehta (1845-1915). Mahatma Gandhi demonstrated
through a humane, non-violent, and dignified protest, that all humans were equal and
should be treated equally, including their well-being given the opportunity to govern
themselves. The major advance in the theory seemed to have had a major effect in
ending the age of imperialism and the age of racial discrimination.

Mahatma Gandhi, the father of the nation, emphasized the importance of

means, stating that the means are as much or even more important than the end. He
laid the foundation of moral and ethical conduct in political and public life. His
concept of ‘trusteeship’ is pertinent to the concept of good governance. The
foundation for good governance is righteousness in public affairs. The conduct of
those involved in governance requires adhering to righteousness which calls for
exhibiting the highest standards of morality and ethical behaviour. Dharma, in
Sanskrit, means that which sustains the righteous path. Swami Vivekananda stressed
upon right means, since means will take care of the end.

Jawaharlal Nehru, with doubts on the individual ability to think, take

responsibility, and make ethical choices, believed that planning and concentrated
power in the State were vital and viewed socialism as not merely an economic
doctrine, but favoured it as a vital creed. The industrialists, with Bombay Plan,
 40

supported Nehru on a socialist pattern based on the Soviet Five-Year Plan model. The
changes in political institutions due to liberalism in England had its impact on India
due to decades of British Rule. Issues like Right to Assembly and Protest under
reasonable circumstances, the Right to Property, and Freedom of expression – with a
relatively free press, became part and parcel of Indian political landscape before
independence. After Independence, the Constitution of India gave liberal rights to its
citizens. The Government entered business as its primary activity to help it achieve
the commanding heights of the economy. Chakravarthi Rajagopalachari, the second
Governor-General of India, Minoo Masani and economist B.R. Shenoy advocated
greater freedom, were opposed to Nehru’s policies but failed inevitably.

The institutional set up in India after independence with the adoption of

socialist model of development led to creation of Licence Raj, (the elaborate licences,
regulations and the accompanying red tape that were required to set up business in
India). The economic liberalision on 1991, initiated in response to a balance-of-
payments crisis, did away with the Licence Raj ended many public monopolies,
allowing automatic approval of foreign direct investment in many sectors. Since 1990,
India has emerged as one of the fastest growing economies in the developing world;
during this period, the economy has grown constantly with only a few major setbacks.

B.R. Ambedkar believed that the fundamental cause of India’s backward

economy was the delay in changing the land system. The solution was democratic
collectivism and entailed economic efficiency, productivity and overhauling the
village economy. He was keen in wiping out the elements of economic exploitation
and social injustice and did not want landlords, tenants, or landless labour and his idea
of economic realism sought both freedom and welfare. The prominent contributions
for the changes to be initiated in the institutional set up in India include Land Reforms
– opining that the process of consolidation of holdings could eradicate the ill effect of
uneconomic holding and usher in the progress of the cultivators; Industrialization
facilitates consolidation and it is a barrier against future subdivision and
consolidation; the state should acquire all the agricultural land held by private
individuals and pay them compensation equal to the value of land; Decentralization of
Finance stating that centralization of government finances was a failure of account of
 41

faulty fiscal system marked by injurious taxes and unproductive or extravagant

expenditure.

Ambedkar emphasized on the nationalization of economy and insisted that

state should manage the economy and the benefits must be distributed equally. He was
for the progressive transformation of society, removing glaring social and economic
inequalities that were due to capitalist system and a firm believer of socialism. He
supported trade union movement and right to strike against capitalism. According to
him caste system in India was a major obstacle to economic growth and development.

The caste system didn’t allow people to teach their professional skills to any
person belonging to other caste. Only the members of their own caste were allowed to
learn the profession. Thus if a person had the skill necessary for a particular job, he
would not accept the profession of a caste lower than his own. In a dynamic industrial
set up, the individual must be free to choose his occupation. But socio-religious
restrictions on inter occupational mobility has following consequences: First, by not
permitting readjustment of occupation, caste become a direct cause of much of the
unemployment in various groups, as a religious Hindu would prefer to be unemployed
rather than getting employed in profession not assigned to his caste. Second,
individual justice and economic efficiency demand that competition exists in factor
market. Due to the restriction on inter-occupational mobility of labour, capital and
entrepreneurship across caste groups, the caste system creates segregation in each of
these markets. Labour and capital thus does not flow from one occupation to another
even if the wage rate or rates of return on investments are higher in the alternative
occupations. This brings about a high level of inefficiency in resource allocation.

Review of Literature

The publications in the area of governance have been quite remarkable and
significant. They are large in number and qualitative in nature. In case the issues
connected with, associated aspects and related and contributory factors are taken into
account, the publications are immensely large. Hence, the review of literature in the
present study has been classified based on the focus of the study and mentioned
below.
 42

6
Agarwal (2014) offers a practical guide for the common man to make
effective use of the fundamental Right to Information under Articles 19 and 21 of the
Constitution of India, as pronounced repeatedly by Supreme Court of India and which
has been given a procedure by Right to Information Act, 2005. The forms for various
petitions and motions under the act have been described and the various websites from
where the needed information can be downloaded are mentioned. The Central and
State Commissions. RTI helper activist too one mentioned.

Ahrens and Meurers (2000)7 focus on the political economy of policy reform
in post-socialist countries. The impact of institutions on economic transformation
process is investigated, and the concept of governance that would strengthen policy
reforms and make them sustainable is empirically tested. The study,while arguing that
effective policy reforms require an adequate politico-institutional foundation,
complements the Washington Consensus that was formed by the Bretton Woods
Organisations and the U.S. Treasury in the 1980s.

Akcay (2002)8 asserts that corruption, which is a symptom of deep institutional

weakness, is blamed for reducing investments and expenditures on education and
health, increasing income inequality, reducing foreign direct investments, distorting
markets, and allocation of resources. The impact of corruption on economic growth
across 54 developing and developed countries for the period of 1960-1995 is analysed.
The empirical results suggest that there is statistically significant negative relationship
between corruption and economic growth.

9
AlBassam (2013) has studied the relationship between governance and
economic growth during times of crisis. He examines whether the strong relationship
between governance and growth exists during economic crisis or only during non-
crisis periods. The results demonstrate that the global economic crisis has an
unnoticeable influence on the relationship between governance and economic growth.
However, the different levels of development of the nations affect the relationship
between governance and growth in various ways during times of crisis. The findings
6
Agarwal S K(2013) Right to Information-A Guide, Transparency International India, New Delhi.
7 Ahrens Joachim and Meurers Martin (2002) "Institutions, Governance and Economic Performance in Post-
Socialist Countries: A Conceptual and Empirical Approach", Mimeo
8
AkcaySeluk (2002) "Corruption and Economic Growth: A Cross-National Study", Ankara Universiteisi SBF
Dergisi 57.
9
AlBassam (2013) "The Relationship between Governance and Economic Growth During Times of Crisis",
European Journal of Sustainable Development, 2,4,pp.1-18.
 43

highlight the instability in the relationship between governance and economic growth
during the economic crisis. The unsteadiness is a sign of the need for long-term
strategies to promote global and national good governance practices that are not
adversely affected by crisis.

10
Anger (2013) discuss the Nigerian experience of democratization and
governance. The paper states that the colonial nature and character of the Nigerian
state has led to a deficit of democracy and good governance in the state. The paper
suggests that, emphasis on vigil civil society, sound economy, accountability in
governance and good leadership is needed for viable democratic governance.

11
Badun (2005) shows the justification and importance of explicit inclusion of
quality governance in the debate on economic growth in Croatia. The article places
emphasis on two of the elements in the quality of governance that is; the rule of law
and the quality of the public administration. To capture this the links between
governance and economic growth in growth theory and empirical research are
analysed. By using an econometric model based on panel data an analysis of quality of
governance and economic growth on a sample of EU countries and Croatia, Bulgaria
and Romania is performed, and then changes in the quality of governance in Croatia
are considered. From a comparison of the values of indicators of the rule of law and
quality of the public administration, and the dynamics and nature of reform in the
administration of justice and the civil service, it appears that those in whom power is
vested in Croatia are more focused on rent seeking than is the case in the average of
EU countries. The institutional shortcomings have affected the current level of real per
capita GDP in Croatia,. The reforms such as ensuring effectiveness of the justice
delivery system and public administration sectors, as well as fighting corruption and
boosting democracy will have a positive effect on the future economic growth of
Croatia have been suggested.

12
Bardhan (2002) highlights the significance of decentralisation of governance in
the process of development. He develops an analytical framework for the role of

10 Anger (2013) "Democratization and Good Governance in Nigeria: Myth or Reality?,African Centre for
Social and Economic Research, Vol.4, No.4.
11
BadunMarijian (2005) "The Quality of Governance and Economic Growth in Croatia, Financial Theory and
Practice 29(4), pp. 279-308.
12
BardhanPranab (2002) "Decentralization of Governance and Development", Journal of Economic Perspectives,
Vol. 16, No.4, (Autumn, 2002), pp. 185-205
 44

decentralised governance in achieving development. Decentralisation has resulted

from ongoing political and economic changes. There is enough scope for rigorous
work in evaluating the impact of ongoing decentralisation initiatives, using detailed
household and community surveys, comparing it with the experience with
centralisation or some other counterfactual.

13
Bardhan and Mookherjee (2006) study the resulting implications of
decentralisation of public service delivery to elected local governments instead of
bureaucrat’s appointment by the central government. By using a theoretical model in
which the central government is uninformed about local needs and unable to monitor
service allocations, they assess the implications. The bureaucrats charge bribes for
services as monopoly providers, resulting in under provision of services, especially for
the poor. The empirical results suggest that expenditure on decentralisation not
accompanied by revenue decentralisation limit the expansionary effect of
decentralisation on service levels.

14
Bhure Lal (2002) has examined the various factors responsible for corruption
in the society. The factors such as low morality of enforcing agency, poor leadership,
scarcity, subsidies, ignorant public opinion, patronage style of relations to superiors,
delays in punishing the corrupt, poor controls, recruitment of unworthy persons for
government jobs, lack of transparency and accountability and strict legal requirements
are the causes of corruption. The various attributes encouraging corruption are
analysed and it is revealed that corruption accelerates crime, hurts investment and
growth, puts burden on the budget and undermines faith in freedom and democracy. It
destroys the citizen's trust in the government.

Chaturvedi and Chandra (2015)15examine the concept of corruption, its

ethical interface and its measurement. Using data for 150 countries in different
income groups and using cross-country regression analysis estimate how corruption
impacts economic growth. It identifies the drag effect of low incomes on ability of
countries to lower corruption and focuses on centrality of growth for reducing
corruption. It brings out criticality of systemic reforms especially of institutions,

13 BardhanPradhan and MookherjeeDilip (2006) "Decentralisation and Accountability in Infrastructure

Delivery in Developing Countries", The Economic Journal, 116 (January), Royal Economic Society 2006,
Blackwell
Publishing, Oxford, pp.101-127.
14
BhureLal (2002) Corruption: Functional Anarchy in Governance, Siddharth Publications, New Delhi.
15
Chaturvedi B K, ShekharChanda (2015) Corruption and Economic Growth, Academic Foundation, New Delhi.
 45

participation of community and its education. The need for laws covering both
corruptions in the government and private companies is emphasised.

Cuckovic and Jurlin (2009)16 analyse the determinants of competitiveness and

economic governance for the new EU member states and Croatia. In the EU context,
two levels of economic governance do affect the level of country competitiveness;
they are: domestic economic governance mechanisms (policies and institutions) and
the EU economic governance mechanism for both member states and acceding
countries such as Croatia. By making use of the data and findings of the executive
opinion survey conducted for the World Economic Forum published in the Global
Competitiveness Report 2008/2009, the impact of economic governance on the level
of country competitiveness is analysed. This is done by analysing the World
Economic Forum Survey findings and composite indicators on some issues such as
government efficiency, property rights, ethics and corruption.

17
Dreher and Herzfeld (2005) review the empirical literature on the economic
costs of corruption. Corruption negatively affects economic growth, the level of GDP
percapita, investment activity, international trade and price stability; it also biases the
composition of government expenditures. By estimating the effect of corruption on
economic growth and GDP percapita and also on six possible transmission channels,
the results reveal that an increase of corruption by about one index point reduces GDP
growth by 0.13 percentage points and GDP per capita by 42 US dollars.

Earle Lucy (2010)18 researches on the impact of governance work on poverty

reduction and development outcomes. It explains the importance of good governance
in enhancing both intrinsic and instrumental developmental value. The report traces
the emergence of ‘good governance agenda’ from early 1990s to the present day. The
report analyses the developmental impact of different areas of governance like
democratisation, justice and rule of law, corruption, decentralisation, public
administration reform and public financial management.

16 CuckovicNevenka, JurlinKresimir (2009) Determinants of Competitiveness and Economic Governance:

Some Evidence from the new EU member States and Croatia, 2009 Biannual EUSA Conference, Los Angeles,
California
17
Dreher Axel and Herzfeld (2005) "The Economic Costs of Corruption: A Survey and New Evidence", Public
Economics 0506001, EconWPA.
18
Earle Lucy (2010) " Assessing the Evidence of the Impact of Governance on Development Outcomes and
Poverty Reduction", Governance and Social Development Resource Centre, Issues Paper was commissioned by
the UK Department for International Development (DFID).
 46

19
Farida and Ahmadi-Esfahani (2006) examine the impact of corruption on
economic growth in Lebanon. Using a neoclassical model, they hypothesize that
corruption reduces the country’s standard of living as measured by real per-capita
GDP. Corruption deters growth indirectly through reducing the factor input
productivity in Cobb-Douglas production function. They provide empirical evidence
suggesting that corruption increases inefficiencies in government expenditure and
reduces investment and human capital productivity, leading to a negative impact on
output.

Gyimah-Brempong (2001)20 used panel data from African countries and a

dynamic panel estimator to investigate the effects of corruption on economic growth
and income distribution. It is found that corruption decreases economic growth
directly and indirectly through decreased investment in physical capital. A unit
increase in corruption reduces the growth rates of GDP and per capita income by 0.75
and 0.9 percentage points and between 0.39 and 0.4 percentage points per year
respectively. The results also indicate that increased corruption is positively correlated
with income inequality. The combined effect of decreased income growth and
increased inequality suggests that corruption hurts the poor more than the rich in the
African countries.

Habtamu Fuje N(2008 )21 assesses the role of institutions in explaining the
slow growth of Africa. The author explores the impact of aggregate technical
inefficiency which affects economic growth. In order to evaluate the impact of
institutions on economic growth, classical growth models have been estimated using
difference and Generalized Method of Moments (GMM) using data from 35 selected
Sub-Saharan African (SSA) countries from 1996-2005. The paper finds that Rule of
Law, government effectiveness, regulatory quality, political instability, voice and
accountability influence the growth of SSA, but corruption has no effect on growth in
SSA. Using Stochastic Frontier Analysis, the paper finds that regulatory quality and
government effectiveness influence technical efficiency while, voice accountability

19
Farida Moe and Ahmadi-Esfahani Fredoun Z. (2006) "Corruption and Economic Growth in Lebanon",
Australian Agricultural and Resource Economic Society, 52nd Annual Conference,
20
Gyimah Kwabena-Brempong (2001) "Corruption, Economic Growth, and Income Inequality in Africa",
Economics of Governance, Springer-Verlag, AmFiTan International Conference on Development Ethics.
21
Habtamu Fuje N (2008) "Roles of Governance in Explaining Economic Growth in Sub-Saharan Africa, Africa
Policy Journal, Harvard University, Volume IV.
 47

and political instability have no impact on technical efficiency. The paper finds that,
SSA's poor economic performance is attributed to bad governance.

Hodge et al (2009)22 model the transmission channels through which

corruption indirectly affects growth. The results suggest that corruption hinders
growth through its adverse effects on investment in physical capital, human capital,
and political instability. Corruption is found to foster growth by reducing government
consumption and, less robustly, increasing trade openness. The total negative effect of
corruption on growth is estimated from these channels. The effects are found to be
robust to modifications in model specification, sample coverage, and estimation
techniques as well as tests for model exhaustiveness. The results imply that the
negative effect of corruption on growth is diminished in economies with low
governance levels or a high degree of regulation.

23
Hung Mo (2000) introduces a new perspective on the role of corruption in
economic growth and provides quantitative estimates of the impact of corruption on
the growth and importance of the transmission channels. By using Ordinary Least
Squares estimation, find that a one per cent increase in corruption level reduces the
growth rate by about 0.72 per cent, this means that a unit increase in the corruption
index reduces the growth rate by 0.545 percentage points. The most important channel
through corruption affects economic growth is political instability, which accounts for
53 per cent of the total effect. According to the study, corruption reduces the level of
human capital and the share of private investment.

24
India Corruption Study (2005) , taken up by Transparency International India
(TI India) helps in sensitizing the common man against all pervasive corruption faced
on day to day basis by taking into account eleven public services in twenty major
states of India. The study helps to track the various initiatives like the “Right to
Information Act", adoption of E-Governance and various administrative reforms
being undertaken across the country to improve service delivery and reduce

22 Hodge Andrew, Shankar Sriram, DS Prasad Rao (2009) "Exploring the Links between Corruption and
Growth",
School of Economics Discussion Paper No. 392, School of Economics, The University of Queensland,
Australia.
23
Hung Mo Pak (2001) "Corruption and Economic Growth", Journal of Comparative Economics 29, pp. 66-79,
[Link]
24 Transparency International India, India Corruption Study 2005, India Corruption Study to Improve
Governance, Transparency International India, New Delhi.
 48

corruption. The study is based on a rigorous and comprehensive methodology

developed by Centre for Media Studies (CMS).

Kaufmann and Kraay (2008)25 using a simple framework that distinguishes

between the indicators that measure formal rules and indicators that measure the
practical application or outcomes of these rules. The attention of the analysis is
towards the strengths and weaknesses of both types of indicators as well as the
complementarities between them. It distinguishes between the views of experts and
the results of surveys and assesses the merits of aggregate as opposed to individual
governance indicators. They identify some simple principles to guide the use and
refinement of existing governance indicators and the development of future indicators.
The principles include, transparently disclosing and accounting for the margins of
error in all indicators, drawing from diversity of indicators and exploiting
complementarities among them, submitting all indicators to rigorous public and
academic scrutiny, and being realistic in expectations of future indicators.

Kaufmann Daneil, Aart Kraay and Massimo Mastruzzi (2010)26 cover 200
countries measuring 06 dimensions of governance from 1996. The 06 variables
considered are voice and accountability, political stability and absence of
violence/terrorism, government effectiveness, regulatory quality, rule of law and
control of corruption. The data was collected from public, private and NGO sector
experts worldwide. The paper reflects the inherent difficulties in measuring
governance data, like margin of errors with each country estimate. In spite of these
difficulties, the Worldwide Governance Indicators (WGI)permit meaningful cross
country and over time comparisons.

27
Khan (2007) has distinguished between liberal economists and heterodox
economists views on governance and economic growth. 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, the heterodox economists have stressed the role

25 Kaufmann Daniel and Kraay Aart (2008) " Governance Indicators: Where are we, Where Should We Be
Going?, published by Oxford University Press on behalf of International Bank for Reconstruction and
Development
26 Kaufmann Daniel, Aart Kraay, Massimo Mastruzzi (2010) "The Worldwide Governance Indicators:
Methodology and Analytical Issues, Global Economy and Development, Worldwide Governance Indicators
27
Khan Mushtaq H (2007) "Governance, Economic Growth and Development since the 1960s", Economic and
Social Affairs, DESA Working Paper No. 54, ST/ESA/2007/DWP/54.
 49

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. The current policy
exclusively focuses on the view of the liberal economists, and ignores the strong
empirical and historical evidence supporting the heterodox economists’ views to the
detriment of the growth prospects of poor countries.

28
Krueger (1990) analyses that in many developing countries, governmental
policies have been highly distortive and harmful to economic growth. The policies
have neglected the provision of infrastructure, and have commissioned highly
restrictive trade regimes and credit rationing. The paper discusses the issues arising
from recognition that governments, like markets, are imperfect and the consequences
on development on account of government failure are immense and the suggestions
thereafter have been presented.

29
Kutan et al (2009) addresses the impact of corruption on economic
development by providing evidence in Middle-Eastern and North-African, and Latin
American countries. They find that developing countries/economies have different
cultural and economic characteristics, but they are plagued by roughly similar levels
of corruption.

30
Obayelu (2007) provides an overview of Nigeria’s recent experience on
corruption in the context of economic reforms programme. Data were used mainly
from new stories, reports of tribunals and commissions of enquiry, interviews of
people with relevant information, anecdotes, and personal knowledge of the country.
The results show that there have been significant reductions in the level of corruption
in the country through the introduction of government anti-corruption instruments.
There was a negative correlation between levels of corruption and economic growth
thereby making it difficult for Nigeria to develop fast.

28 Krueger Anne O (1990) "Government Failures in Development", National Bureau of Economic

Research, Cambridge, NBER Working Paper Series.
29
Kutan Ali M, Douglas Thomas J and Judge William Q (2009) "Does Corruption Hurt Economic Development?:
Evidence from Middle Eastern, North African and Latin American Countries,
30 ObayeluAbiodun Elijah (2007) "Effects of Corruption and Economic Reforms on Economic Growth and
Development: Lessons from Nigeria", 2007 African Economic Conference, University of Ibadan, Nigeria.
 50

31
Rivera-Batiz examines the effect of democracy on long-run growth by
influencing the quality of governance. The empirical evidence approves of the fact
that the quality of governance is substantially higher in democratic countries. An
endogenous growth model with a general-equilibrium framework is built to show how
a governance -improving democracy raises growth. In the model, stronger democratic
institutions influence governance by constraining the action of corrupt officials.
Reducing corruption in turn stimulates technological change and spurs economic
growth. The empirical evidence shows that democracy is a significant determinant of
Total Factor Productivity (TFP) growth between 1960 and 1990 in a cross-section of
countries.

32
Mathur (2015) attempts to analyse some of critical problems facing
governance and endeavours to draw a road map for reform in India. Major areas of
public administration are covered and their significance spelt out.

Singh (2008)33 paper identifies the essential features of good governance and
its shortcomings and emphasizes the need for innovative approaches. The author
explains good governance in terms of securing justice, empowerment, employment
and efficient delivery of services. The paper identities criminalization of politics and
corruption as two major challenges and emphasises the role of government, market
and civil society in combating the issues of governance. The paper stresses the need to
formulate a national strategy on Gandhian Principle of ‘Antodaya’ not being
compromised with growth objectives.

34
Srivastava C.P. (2001) focuses mainly on the problem of corruption and
explains why India is gripped in its vicious strangle-hold. The history of corruption
has been traced. The extent of damage caused due to corruption has been highlighted.
The book thus claims that the correction process must begin at the topmost political
and administrative levels. It has suggested a detailed plan of action, by proposing
some steps for the promotion of ethical standards in society as well as in the business
community.

31 Rivera-Batiz L Francisco (2002) "Democracy, Governance and Economic Growth: Theory and
Evidence", Review of Development Economics, Vol.6, No.2, June 2002, pp. 225-247.
32
Mathur B P (2005) Governance Reform for Vision India, Macmillan India Ltd. Delhi.
33
Balmiki Prasad Singh (2008) "The Challenge of Good Governance in India: Need for Innovative Approaches",
Second International Conference of the Global Network of Global Innovators, Cambridge, Massachusetts, USA.
34
Srivastava C P (2001) Corruption India's Enemy Within ,Macmillan India Ltd, Delhi.
 51

35
The Consultation draft on Good Governance in the Public Section (2013)
highlights the aim of governance on the public sector. Good governance in the public
sector is to encourage better service delivery and improved accountability. Effective
governance is characterised by robust scrutiny, which provides important pressures for
improving public sector performance and tackling corruption. The paper highlights
that though, there is a broad consensus on the importance of governance for
development, their development and poverty reduction outcomes are far from
expectations. The author finds that, bad governance affects the poor and the
institutions for the poverty reduction negatively, and suggested that, the donors should
focus on demand side of governance and citizens’ active intervention would improve
the development outcomes of the governance.

The Policy Document on Good Governance (2006)36 emphasises the

importance of good governance. The experience of the last few decades in partner
countries in the South and in South Eastern Europe has shown that bad governance
and the abuse of human severely jeopardises human development. Thus, good
governance has taken on increasing importance in the last 15 years. The Millennium
Declaration represents the most forceful and explicit commitment by the UN member
states to date to the principles of good governance. Good governance is a theme of
fundamental importance for all areas of activity. The Austrian Development
Cooperation anchors the cause of good governance.

The Report by the Marketing and Development Research Associates

(MDRA)37 for Transparency International India (TII) and sponsored by Shriram Group
is based on a field study to assess the extent and nature of corruption in the trucking
operations. The extent of corruption is estimated in monetary terms. Using qualitative
and quantitative research methods, primary data on corruption in trucking operations
was collected. The interview method was followed, in all 1,222 truck drivers and
operators were interviewed at 12 trucking centres out of 16 major trucking hubs in the
country. In depth interviews were conducted with officials, experts and

35 The Chartered Institute of Public Finance and Accountancy (2013) " Good Governance in the Public
Sector -
Consultation Draft for an International Framework", Consultation Draft, June 2013, International Federation of
Accountants (IFAC), New York.
36
Policy Document (2006) "Good Governance", Austrian Development Cooperation, Federal Ministry for
European and International Affairs, Austria.
37 Transparency International India (2006) Report on Corruption in Trucking Operations in India,
Conducted by MDRA, New Delhi.
 52

senior executives of leading truck companies and office bearers of truck operators
association. The results and findings are based both on primary as well as secondary
data.

38
Uddin (2010) assesses the impact of good governance on development in
Bangladesh. Governance has been defined as a power which exercises for effective
conduct of country's economy and social resources. Good governance plays a vital
role for a healthy and independent economy or culture. The thesis searches answer for
questions like do the good governance principles impact on the local development in
Bangladesh? What are the main components of good governance? Do the components
of good governance exist in Bangladesh? What is the present situation of good
governance in Bangladesh? Why does good governance become a prerequisite for
local development?

Using secondary data from World Bank and primary data which is collected
through field survey, the thesis finds that good governance is needed in all aspects of
Bangladesh. As a Least Developed Country Bangladesh should utilise its limited
resources at its level best. There is a need for psychological revolution to ensure good
governance in Bangladesh.

Ugur and Dasgupta (2011)39 assert that corruption is a symptom and outcome
of institutional weakness, with potentially adverse effects on a country’s impact of
corruption on economic growth theoretically and empirically with a view to (a)
providing a narrative synthesis of the types of corruption and the causal links between
corruption and growth; (b) providing a meta-synthesis of the empirical evidence on
the direct and indirect effects of corruption on growth; and (c) mapping the narrative
synthesis with the meta-analysis in order to derive policy conclusions and indicate
potential avenues for further research. The focus is on the growth impacts of
corruption in Low-Income Countries (LICs). They provide evidence for a larger set of
countries for comparative purpose. Using 32 key search terms and 43 low-income
country names to search in 20 electronic database. They combined the narrative

38 Uddin Anowar S M (2010) "Impact of Good Governance on Development in Bangladesh: A Study",

Master's Thesis in Public Administration, Institute of Society and Globalization, Roskilde University, Roskilde,
Denmark.
39
Ugur Mehmet, Dasgupa Nandini (2011) "Evidence on the Economic Growth Impacts of Corruption in Low-
income Countries and Beyond, Systematic Review, EPPI-Centre, Social Science Research Unit, Institute of
Education, University of London, London.
 53

hypothesis method for theoretical, analytical studies with the meta-analysis method
for empirical investigation. The meta-analysis results are represented as random-effect
weighted average. The statistical significance of the random effect estimates is
verified through precision-effect tests (PETs) that detect “genuine” effects beyond
bias. They report that corruption has a negative and genuine effect on growth in low-
income countries. The direct effect of corruption on growth in LICs is small but
negative. Therefore, economic gains from reducing corruption in LICs can be
increased if, anticorruption interventions are combined with a wider set of policies
aimed at improving institutional quality and providing correct incentives for
investment in human capital.

40
Voskanyan (2000) demonstrates that high scale of corruption may have
harmful effects on economic and political development in the case of Armenia.
Corruption has been defined in many ways and the causes of corruption many in
number like cultural factors, psychological factors and system related factors cause
corruption in every society. The factors such as monopoly power, discretionary
powers and weak accountability of public officials give opportunities for corrupt acts.
Corruption decreases the efficiency of investment, reduces the effectiveness of use of
aid, dissipates political legitimacy and hinders the democratic development. The
anticorruption campaign should mainly concentrate on the reforms of civil services,
judiciary system, and tax and custom departments. The successful implementation of
anticorruption campaign in Armenia is preconditioned by the free and fair elections,
politically educated people and by honest leaders.

With the review of the literature published, the research gaps have been
identified and discussed in subsequent chapters. To start with, in the third chapter, a
comparison of the level of development in developed, developing and less developed
countries is made.

40
VoskanyanFrunzik (2000) "A Study of the Effects of Corruption on Economic and Political Development of
Armenia", Master's Dissertation, American University of Armenia, November 2000.