World Bank

June 2003

This 41-page World Bank Policy Research Working Paper - a product of the Poverty Reduction and Economic Management Division, World Bank Institute - explores the link between information flows and governance, worldwide. In this paper, Roumeen Islam explores the following questions:

• Is the timely availability of economic data associated with better economic and political outcomes? How and why?
• How do restrictions on the use of information - namely, the presence of a Freedom of Information Act (FOI) - affect information flows (e.g., the mass media) and therefore the quality of governance?

To get at these questions, Islam uses two kinds of indicators to assess better information flows:

1. The transparency index - measures the frequency with which economic data are published in countries around the world.
2. The access to information index - based on the existence of FOIs

In short, Islam's analysis shows that countries which have better information flows as measured by both indicators have better-quality governance for a wide number of governance indicators such as government effectiveness, regulatory burden, corruption (both Kaufmann, Kraay and Zoido-Lobaton (KKZ) and International Country Risk Guide (ICRG) ratings), voice and accountability, the rule of law, bureaucratic efficiency, contract repudiation, expropriation risk, and a composite ICRG index. "These results hold under various permutations of the relationship; such as when state ownership of the media, various continent dummies and transparency are added. Controlling for
newspaper circulation, freedom of the press and a measure of autocracy does not change the basic results."

Islam comes to this conclusion by mapping out, in tables and charts, various developing- and developed-country-specific correlations. Based on this presentation, she makes the observation that "information gives power to monitor and make good choices"; thus, "a significant and positive correlation between transparency and improved governance gives us pause to think: just giving better data to people can help countries do better." How is this so? Islam argues that "Good policymaking requires up-to-date information on the economic situation; good policymaking requires the sharing of information for better coordination, analysis and monitoring." Information, that is, enables citizens to make economic and political choices, and reward or punish those in positions of power, accordingly - that is, governments become more accountable to their people.

Furthermore, Islam's analysis shows that "better decision-making in economic and political markets boosts growth....Thus, in the policy guidance that development advisors seek to impart, advising countries on the importance of processing and sharing data, on making this data widely available is policy advice that can boost economic growth."

Islam concludes by stressing that her research has not demonstrated causality from more transparency to better institutional flows (it is likely that better governments are also more likely to promote more transparency). More research, she urges, is needed; however, "This paper provides a simple way to quantitatively assess whether the magnitude of the association is significant and worth another look."