Democratic Public Governance and Economic Growth in Latin American Countries

This paper uses the six governance indicators developed by the World Bank (2022) to evaluate governance performance in 20 Latin American countries in the first two decades of the 21st century. In doing so, we use the difference-in-mean (DIM) estimation method to quantitatively assess the governance quality and pinpoint the relative position of each Latin American country in the governance-economic growth orbit. In addition to the DIM estimation method, we provide country-specific correlation matrix to show the relationship between the governance indicators and economic growth, and then we estimated a governance-induced economic growth model to determine statistically which governance indicators have positive or negative or no impact on economic growth. The analysis of the growth model enables the statistical determination of whether governance is growth-enhancing or growth-retarding or growth-neutral in Latin American countries. The results show that governance is growth-enhancing in Chile, Honduras, and Uruguay with a mixture of growth-enhancing and growth-retarding in Peru. Based on the results of the analyses, the logical recommendation is that governments in Latin American countries should strategically implement policies to improve upon those governance indicators that are growth-retarding and/or growth-neutral because functionally effective governance is fundamental to sustainable economic growth in the 21st century.