Introduction

In response to the ongoing global economic and financial crisis, governments around the world have pledged to spend trillions of dollars on infrastructure over the next few years. This expenditure is likely to roll out intensively between 2009 and 2015. As Gerritsen (2009: 1) noted: “This great infrastructure boom will create winners and losers. Losers will squander infrastructure spending on corruption and ineptitude. Winners will create powerful new engines of economic growth for generations to come based on new energy, globally competitive health care and strong educations.”

The institutional and software components of regional infrastructure are just as important as the hardware components (Asian Development Bank [ADB] 2008; Organisation of Economic Co-operation and Development [OECD] 2009; United Nations [UN] 2009). Europe's experience suggests that improved governance and institutions along with favorable policies can facilitate the development of regional infrastru cture, resulting in greater prosperity and stability for countries in the region (ADB-ADBI 2009).

Broadly defined, institutions are humanly devised constraints that structure political, economic and social interactions (North 1990). They exist to reduce uncertainties that arise from asymmetric information. Formal institutions are typically imposed by rulers, parliaments, and bureaucracies. The outcome of their actions can broadly be defined as governance, which can either be good or bad governance. In othe r words, governance can be defined as the process by which decisions are made and implemented. Governance is the outcome of institutions (good or bad).

This paper focuses on the role of governance in regional infrastructure development. It aims to explore whether governance is an essential prerequisite for building effective infrastructure, by:

1. assessing the empirical relationship between governance and infrastructure;
2. estimating the relative strength (and intensity) of factors—including governance and institutions—that influence infrastructure development; and
3. assessing the impact of governance and its components on regional infrastructure development.

The rest of the paper is organized as follows: Section 2 presents the background of the study and explores the linkages between institutions, governance, and integration. Section 3 discusses the data and methodology, while Section 4 reviews the literature on governance and infrastructure development. Section 5 defines the governance index and its components, and presents an analysis of the performance of Asian countries in a global perspective. Section 6 discusses measurement issues and analyzes the empirical relationship between governance and infrastructure, while Section 7 presents the econometric models and estimation results. Section 8 concludes.

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