Institutional Governance And Infrastructure Development

Without the creation of institutional specialization, building capacities and knowledge, governments will remain at a disadvantage compared with regional and global neighbors, and also in situations such as negotiations with large international corporations and developers. Lack of transparency and accountability, and poor governance in general, leading to unmanageable political risk can discourage private sector participation and funding. Regional institutions including multilateral development banks can play an important role in these areas by providing guarantees against such risks and both technical assistance and capacity building and training. Aspects of good governance including autonomy, transparency, accountability, effective decision making processes and decision tools are essential for developing an effective regional infrastructure (ADB 1995, 2006; ADB/ADBI 2009).

• Good governance requires sound financial and legal systems, the systemic protection of rights, and the support of strong regulatory bodies to provide oversight and to monitor and enforce rules. ADB defines four aspects of sound governance that it considers relevant for all Asian countries as²:
• “Accountability: Officials must be answerable to the entity from which they derive their authority; work must be conducted according to agreed rules and standards, and reported fairly and accurately.
• Participation: Public employees must be allowed a role in decision making; citizens, especially the poor, must be empowered by promoting their rights to access and secure control over basic entitlements that allow them to earn a living.
• Predictability: Laws, regulations and policies must be applied fairly and consistently.
• Transparency: Low cost, understandable, and relevant information must be made available to citizens to promote effective accountability, and clarity about laws, regulations and policies” (ADB 1995, 2006; Wescott 2005).

The quality of governance in Asian countries varies widely. One possible measurement or means for defining and quantifying the multidimensional structure of a country's governance is through six indicators developed by the World Bank Institute, namely: Voice and Accountability (VA), Political Stability and Absence of Violence (PS), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), and Control of Corruption (CC). According to a recent empirical study by De and Bhattacharyay (2009b), governance as measured by the composite governance indicator (composed of the six indicators listed above) is a significant determinant for national infrastructure and hence for regional infrastructure development. A comparative analysis of the global ranks of selected Asian countries in the six governance indicators listed above for 1996 and 2007 is presented in Table 1 [ PDF 30.6KB | 1 page ]. The analysis of rank correlations shows a strong and significant correlation between the ranking in 1996 and 2007. This implies that global ranks in governance of Asian countries have not seen significant changes during 1996–2007.

All individual governance indicators except for regulatory quality and political stability had significant positive relationships with regional infrastructure. In terms of the impact of subregional groupings on infrastructure, Northeast Asia showed a strong positive relationship with all six indicators. Southeast Asia had a similar relationship except for government effectiveness and regulatory quality. In the case of Central Asia and South Asia, the indicators do not show a significant relationship with infrastructure. Therefore, the improved governance and capacity of national and regional institutions may help reduce risks and transaction costs for regional infrastructure projects and thus make such projects bankable. It can be concluded that strong and formal national and regional institutions with appropriate governance structure need to be developed to achieve effective regional infrastructure connectivity in Asia.

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Comment(s)

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1. Sritanu Chatterjee
   (posted 29 June 2010 / 12:13:47 PM)
   
   Dear Sir,
   
   I much appreciate the effort to write this well thought-out paper. It is true that most of the Asian integration has been market driven with a bottom up approach unlike that of NAFTA or EU. But it would have been better as to think about how market driven approach can transform the thinking of national governments to implement the soft infrastructure. Some of the top-down projects that have faced eternal delays are mostly due to changes in market condition. One of the examples is the India-Pakistan-Iran gas pipe line project. The project seemed very attractive and feasible till crude was trading 140 USD and projected to reach 200 USD. But now the whole project is lying in shambles. So I think it is very important to have the soft infrastructure in place and that will expedite the process of regional integration.
   
   The institutional framework presented in the paper is quite elaborate. Some timelines or for the formation of each the teams could have been provided.
   
   Is there any forum still now where the premiers of Asian countries can meet? What I think missing in the papers is the process of initiation of talks for the formation of PAIF Summit Steering Committee.
   
   As crisis helps in creating successful institutions that can change the destiny of nations, I hope that the Asian Connectivity program of ADBI would help in changing the future of 60% of the world population.
   
   Thanks & Regards,
   Sritanu