Private Sector Development and Governance in Ghana

This study will examine the drivers of change in the quality of governance in a developing country like Ghana. While the literature has pointed out a number of potential determinants of change, such as democracy, press freedom, leadership, or technical assistance, we are particularly interested in state-business relations. Obviously, good governance has a positive impact on private sector development, as highlighted by various previous studies. But in contrast, we intend to focus more on the reverse effects, that is, the influence of the private sector on government regulations. So far, these feedback effects have not been examined thoroughly in developing countries (There exists only one previous study by Acemoglu, Johnson and Robinson on “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth”, published in the American Economic Review in 2005, focusing on European countries a few hundred years ago). Within the broad area of governance, we are interested in the quality of government regulations for the private sector, that is, the overall business environment in key sectors (or potentially important sectors) from the perspective of the Ghanaian economy. More specifically, the study will look at government regulations in manufacturing and services, e.g., labour laws, market entry and exit regulations, etc. To achieve this, the study will examine three hypotheses: The first and main hypothesis is: the private sector has a positive influence on the quality of government regulations and that this influence is more likely to be sustainable in the long run (as opposed to, e.g., external pressure). The second hypothesis proposes: the private sector has to reach a critical size to have any influence on policy makers. Finally, the third hypothesis suggests: the impact of activities of the private sector on regulatory quality could well be negative, depending on the circumstances of the particular sector, such as the type of product involved, profit margins and competition intensity. The study is divided into two main parts. The first part consists of an econometric analysis of the main determinants of government regulations over time and across countries (panel data analysis of 140 countries since 1970). In the second part, we will undertake an in-depth analysis of the political economy of change in governance in Ghana. Upon completion, the study will be able to pinpoint the main drivers of change in governance in Ghana. Ghanaian stakeholders will better understand why changes in government regulations have happened in the past as well as the direction of change; whether positive or negative. Also, the outcome of the study will enable policy makers to further improve the quality of regulations, e.g., by creating an environment for an endogenous (positive) change in regulatory quality. This will be accomplished by identifying the areas of most importance for policy makers to enable a sustainable change in regulatory quality in the long run. Also, the study will identify the risks to policy makers when the private sector tries to influence business regulations.