Transparency and Markets
Argentina Presentation
26th April, 2007
Roumeen Islam, Ph.D
Manager, Poverty Reduction and Economic
Management
World Bank Institute
What is meant by Transparency?
Means sharing relevant information
for market transactions: economic or
political markets
Information that one party has but
another does not; though he/she may
be affected by it
Why is Transparency Important?
Economic Theory
Direct impact of information in
economic transactions/markets
Impact on public policy and
governance
Need information flow
Between different arms of government;
public agencies
Government and business
Government and society
Private sector to private sector
Today interested in both roles of information.
But so much information needed…role of
govt in enhancing disclosure and in
producing more information.
Markets often non-transparent
because
Costs of info production, management,
disemmination
Confers a financial benefit to not share
information
Unwillingness to be monitored: principal
/agent problems
Not enough demand since value of
information not known
Information problems in different
markets
Labour
Finance
Goods
Services
From Theory to Practice….
Private Solutions and Public
Solutions
Credit bureaus versus credit registries
Financial disclosure requirements
Stock market listing
Signalling with education degree
Informal networks
Land registries
Media
What evidence is there that it is
better to be more transparent?
“Does more transparency go along
with better governance”
11 economic indicators: exchange
rate, interest rate, govt revenue,
expenditure, FDI, exports, imports,
gdp, cpi, unemployment rate, money
supply.
Index of how timely information is
Results
Correlated highly but not perfectly
with income (cost of production and
maintenance)
Correlated with governance and other
impact indicators (such as
infrastructure measures, and social
indicators).
Evidence from finance
Cross country study on private monitoring
(Barth, Caprio, Levine and Beck,
Demirguc-Kunt and Levine): compare
different forms of bank regulation:
transparency vs more detailed supervision
results: higher transparency implies more
private credit, lower non-performing loans,
lower corruption in bank lending.
Economic transparency has similar effects.
Transparency and Outcomes
Studies by Von Hagen and Harder (1994) for EU and by
Alesina and other (1995) for Latin America find strong
evidence of linkage : fiscal discipline greater
In a recent study* James Alt and David Lassen construct an
index of fiscal transparency for 19 OECD countries. They
test a number of fiscal performance indicators against the
index and find that a higher degree of fiscal transparency is
associated with lower public debt and deficits, independent
of controls for other explanatory variables.
* Fiscal transparency, political parties, and debt in OECD countries
European Economic Review Volume 50, Issue 6,
August 2006, Pages 1403-1439
Transparency and Outcomes,
contd.
Glennerster and Shin (2006) find that the
release of macroeconomic information in
the form of publication of the IMF article IV
consultation reduces spreads.
Gelos and Wei (2005) lend further support
to the hypothesis of a risk-reducing role of
fiscal transparency by showing that
international funds prefer to hold more
assets in more transparent countries.
Transparency and Outcomes contd.
GELOS and WEI (2005) examine this question by
constructing new measures of transparency, by making use
of a unique microdata set on portfolio holdings of emerging
market funds around the world and by distinguishing
between government and corporate transparency.
They find clear evidence that funds systematically invest less
in less transparent countries.
Additionally, funds have a greater propensity to exit non-
transparent countries during crises.
Value of benchmarking
Economic transparency versus broader transparency
Measures to enhance public
transparency
Production and management of
information: e.g. records
management, publication, e-gov
Legislation and implementation
FOI and related
Diversity in Systems and Processes
Costs
Skills
Historical coincidence/culture
Relationship of state with society
Degree of decentralisation means info
hard to get, yet critical
Even without formal laws, countries do
well