Update: Final Transparency Index article, published in the Journal of Comparative Economics

The original working paper of this has now been published (or at least is an Article in Press), in the Journal of Comparative Economics.  There are, of course, some notable differences between the original Working Paper version of this, and the final one here.  In particular, there were changes to the index itself, and so I have put an excel file of the new indicator on the ‘Datasets’ page.  I would highly recommend you use this new one, rather than the Working Paper version.  Although I may say more on this later, at this stage, I’ll just quote the abstract:

“Interest in the political and economic consequences of transparency has grown significantly over the past decade. The literature, however, has been hampered by methodological issues over what actually constitutes ‘transparency’, as well as the lack of a quantitative indicator that has substantial coverage across countries, and time. This paper uses a relatively new methodology, similar to Transparency International’s Corruption Perceptions Index, to construct composite indicators of what we call Informational Transparency, and Accountability. These new indicators use data from 29 sources, with scores being derived annually between 1980 and 2010 across more than 190 countries.”

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Discussion Paper: A Global Index of Information and Political Transparency

This is a paper I’ve been working on for a while. It is still definitely in ‘beta’ mode, and so am happy to take comments and criticisms on it.

The paper essentially develops a measure of transparency that has coverage across a wide number of countries, between 1980-2010.  The data is available on the ‘Datasets’ page on this site. whilst the paper itself can be found on the ‘Research and CV’ page.

The index is developed along similar lines to the Corruption Perceptions Index from Transparency International, and the World Bank’s Governance Indicators. Readers will note that transparency has been divided up here into two components: Political Transparency, and Information Transparency. I have made the distinction because I think it is an important one to make.  There’s a lot of talk around about ‘Big Data’, and getting governments to be more open with the statistics they have at their disposal. There have been criticisms of this from some, in the sense that simply making more data available does not of itself render a government suddenly ‘transparent’. I agree, in the sense that transparency and accountability are not necessarily the same thing. Nevertheless, to discount the value that this information has is still wrong-headed. Information, irrespective of whether it helps make the government more accountable or not, is still valuable – to civil society, international agencies and, most importantly, to the private sector.  Therefore I have a component for ‘Information Transparency’, which is a composite index of measures that purport to measure specifically the amount (and quality) of information being released by the government.  Over the entire period, I have 12 separate sources for this measure, which I have then combined to form one score for up to 191 countries.

The Political Transparency index is constructed in exactly the same way, in that it is a composite index of existing measures.  The difference here is that for Political Transparency, we ARE talking about accountability. The amount of information released is essentially immaterial. What matters for political transparency is that information is potentially discoverable. One example of this is whether the country has a free and independent media.   The ‘Fourth Estate’ operates effectively as an additional constraint on the government, holding it to account for its actions.  This rationale therefore is that this type of transparency is most useful for constraining issues such as corruption and bribery, because of the potential reputational and financial costs to being ‘found out’ are much greater for people engaging in corrupt activities. The Political Transparency index has been compiled from 12 sources, and is available for up to 194 countries.

Having derived these two composite indices, I then undertake a fairly brief application of them with respect to economic growth since 1980.  The evidence presented here suggests that it is not necessarily the level of political or information transparency that is important to growth, but rather changes in transparency.  Specifically, increases in information transparency has a large effect on economic growth. Countries that have, on average, grown the fastest over the past thirty years are the ones that have also seen large increases in their Information Transparency.  To investigate whether this is just a natural consequence of economic growth (that is, as countries grow, more information naturally gets released), I also run a causal analysis, and the results strongly suggest that increases in information transparency are an important precursor to growth. In other words, for economic growth to occur, a country must first improve the amount of information it releases to the public, and so the implication is that the greater access to information helps economic growth in a fairly direct manner.  Conversely, there really is no evidence that Political Transparency has played any substantive role in economic growth over the past thirty years.  Although this requires far more research, this tends to support the idea that corruption can very easily go hand in hand with economic growth in the short run. China is probably a good example of this, in that their exceptional growth over the past twenty years or so has come during a period where there is no freedom of the media, and the political machinations of the government are still very opaque. They have, however, made enormous strides in improving the amount of economic and financial information they collect and release to the public over this period.  At some point down the track, I’ll probably try and investigate a longer run story, in which I would imagine political transparency will play a much more prominent role.  But I’ll leave that for another day!

New paper on transparency and output volatility

I have a new paper coming out in the Economics of Governance journal. The paper, along with all the data, can be found in the ‘Research and CV’, and ‘Datasets’ links above.

Excessive volatility in output (GDP) can be quite damaging for countries. Past research (for example Ramey and Ramey, 1995) has noted that countries that experience wild swings in GDP have also grown more slowly over time. Ideally, one would like countries to have stable, sustained economic growth to raise standards of living.  The next obvious question is what might cause this volatility, because if we can find out why countries experience this volatility, then perhaps policies can be put in place to minimise this volatility.  There have, of course, been a number of candidates put forward over the years, from over-reliance on single sectors in an economy (such as natural resources), through to poor institutions.  Mobarek (2005), following this latter line of thought, looked specifically at democracies.  On average, he found that democracies have exhibited more stable growth than autocracies over the years.  This was an interesting result, but it begged another question – what exactly is it about democracies that helps promote stable growth?  Perhaps people are naturally risk averse creatures, and because democracies represent the will of the majority, the resultant economic policies are also quite risk averse in nature. Hence the country gets more stable growth. Others similarly look at democracy’s ability to solve internal conflicts in a non-violent (and hence more stable) manner.

It’s at this point that I jump in.  One of the other salient features of democracies is that they exhibit greater transparency, in all its forms, from political transparency (the existence for example of a free and independent media), through to what we might call ‘informational transparency’, in that democratic governments also collect, collate and (importantly) release a lot of economic, social and financial information for its citizens. Greater access to information may allow the private sector to adjust more quickly to any adverse shocks that might lead to high volatility.  So in a nutshell my argument is that it’s the greater transparency one gets from democracy, rather than democracy per se, that helps output be more stable over time.

In order to test this theory, I combine two transparency-type indicators – the Freedom of the Press indicator (from Freedom House) to proxy for political transparency, and an index I constructed a few years ago for another paper that proxies the amount of information governments release. I then ran a series of tests using this data.  The results were, to be honest, a lot stronger than what I had envisaged when I first started thinking about this issue.  In the absence of the transparency indicator, democracy did indeed demonstrate a negative relationship with output volatility (that is, democracies had lower volatility). However, as soon as I introduced transparency into the analysis, this effect completely disappeared, and it was transparency that showed a highly negative relationship with volatility.  I ran a large number of other tests to see whether this was sensitive to other competing hypotheses. For example, greater transparency is also associated with lower corruption. Perhaps the link is indirect – greater transparency reduces corruption, which subsequently helps reduce volatility.  This was found not to be the case – corruption was indeed an important component of higher volatility, but transparency continued to be an important factor as well. This suggests (to me at least) that the link might indeed be a fairly direct one – the greater the access to information, the lower is volatility.

Since writing this paper, I”ve been focussing a lot more on the issue of trying to measure transparency in a more accurate way – the proxies I used in this paper were good, but hardly definitive.  Having slaved at this for the past couple of months, I’m hoping to have a draft of a paper that sets out in detail how one might go about constructing such an index. At this stage, transparency has been divided into two groups, similar to above (political and information transparency), and I have put together a number of individual sources that measure aspects of each of these into two composite indicators.  Similar to the Corruption Perceptions index, or the World Bank’s Governance indicators.  I’ll post something more on this when it’s done!

 

What’s on this site?

This site is a way for people to access my published papers, working papers, datasets and other information relating to my research. The bulk of this revolves around the issue of the economic implications of transparency, although I have dabbled a little in education economics over the years. All datasets are in excel, and are available for free, with the only proviso that the requisite attributions are cited.

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