Global briefing: Institutional strength/ China's spy balloon/ the coming advanced economy capex boom/ wartime fiscal rules/ Ireland
Five notable things I'm watching this week
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An excerpt of this week’s note follows below:
Corruption, democracy, & institutions
Institutional quality is the secret sauce of performance across advanced economies, as seen most recently through the pandemic. My analysis of national economic strength shows that variation in institutional quality is an important element in variation in trend economic performance. Last week, two annual measures of institutional quality were released.
The 2022 Corruption Perceptions Index from Transparency International was topped (again) by the Nordics, New Zealand, and Singapore. The UK dropped by 5 places to 18th place, on political scandals around the misuse of government funds. And the Democracy Index was released by the Economist Intelligence Unit, revealing a static picture of worldwide democratic strength. The index was topped by the Nordics, New Zealand, and Switzerland.
Other measures of institutional quality are prepared by the World Bank. I follow a measure of effective governance, which provides insight into the quality of strategic policy. Singapore leads this measure followed by Switzerland, the Nordics, and the Netherlands.
A composite measure of institutional quality that I have developed, drawing on several institutional metrics, shows that small advanced economies lead their larger counterparts. This is a key way in which small economies offset the scale disadvantage to over-perform. Singapore is an interesting case, leading globally on effective governance but lagging on measures of democracy.
In a more turbulent global environment, economies with strong political institutions are likely to offer an edge in terms of growth and resilience (and vice versa).
The meaning of China’s spy balloon
By the time the Chinese spy balloon was shot down off the Carolina coast, having traversed the US with wall to wall media coverage, it had led to the cancellation of the Secretary of State’s visit to Beijing (this week), including a likely meeting with Mr Xi, and had raised US/China tensions.