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Sustained Macroeconomic Reforms, Tepid Growth: A Governance Puzzle in Bolivia?

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by D. Kaufmann, M. Mastruzzi and D. Zavaleta (2003), Chapter 12 in In Search of Prosperity: Analytic Narratives on Economic Growth, ed. D. Rodrik, Princeton University Press

Cross-country empirical studies have limitations in trying to understand in-depth a particular country reality, in ways useful for advice. The approach undertaken here, with the case study of Bolivia is of an integrated nature, combining: i) an historical perspective on the evolution of the enterprise and government sectors over the past half century; ii) an in-depth review of the literature on explanations of Bolivia's performance; iii) an empirical analysis of the country's enterprise sector performance on the basis of a detailed 80-country firm-level survey, and, iv) an empirical analysis of Bolivia's public agencies based on a survey of public officials in Bolivia working in over 100 institutions.

The historical background traces the evolution of Bolivia's political economy, in turn helping frame key hypotheses tested in the subsequent econometric analysis. We analyze the ascent and entrenchment of 'unofficialdom' in Bolivia in both the enterprise sector and the public sector, and the role that misgovernance in Bolivia has played in the link between the public and private sectors and in the underperformance of formal institutions. This has had adverse consequences on growth performance, challenging the notion that broad macro-economic reforms can suffice. The empirical approach permits us to quantify at a micro-level the effects of variables usually not subject to measurement, such as extent of politicization of public agencies, the degree of 'voice' afforded to enterprise, corruption, and the effectiveness of protection of property rights.

More broadly, the methodological approach questions the limits of concentrating on country aggregates as a relevant unit of empirical observation. The empirical evidence points to the large within-country variance in performance and governance across institutions, and policy and institutional factors The conclusions point to the need for: i) political reforms and the de-politicization of public institutions, ii) voice, participation and transparency reforms; and iii) improved protection of property rights for enterprise, combating corruption, and judiciary reforms.


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