Examining the dimensions of governance that are relevant for private investment

Which types of governance indicators matter the most for private investment? This short paper answers the question by examining the impact of specific governance indicators on private investment in a cross-section of developing economies. Results indicate that an effective government that includes competent and independent civil service and credible governmental policies are positively associated with private investment. Fair and predictable rules of the game that determine the extent to which property rights are protected also facilitate greater private investment. Based on this the paper concludes that since some indicators of governance matter more than others, targeted institutional reform that focuses first on the significant dimensions may be key to facilitating private investment in developing areas.