# 4.1.3 Openness to international capital flows

EMDEs have made significant strides toward dismantling capital controls and opening up their capital accounts, starting in earnest in the 1990s. EMDEs on average have fewer open capital accounts than advanced economies, with LAC and MNA achieving the highest average openness scores among EMDE regions. The pace of capital account liberalization slowed in the 2000s, but with EMDEs on net still shifting towards more openness. After the global financial crisis hit, however, countries on net moved back to more restrictions. In 2009, 17 percent of EMDEs shifted to a more closed capital account. The shift toward less openness has continued in recent years, partly in response to volatile capital flows and shifts in the global debate about its role in macroeconomic management (Didier et al. 2015; IMF 2012; Rey 2015).

# 4.1.4 Governance

Getting governance right can significantly boost economic growth, and past governance reform spurts in EMDEs have generally been followed by rising productivity and investment growth. However, most EMDEs, especially those in SSA, still have low scores in regulatory quality and efficiency. Since the global recession, EMDEs experienced fewer governance reform spurts and more setbacks per year than pre-recession.<sup>23</sup> The 22 largest EMDEs (EM22) and LICs have not been able to improve governance scores since the 1990s, with scores for regulatory quality, government effectiveness, rule of law, and control of corruption now lower in the average EM22 and LICs than in 1998 (Figure 10).

# 4.1.5 Trade environment reforms

Trade remains potentially one of the most important avenues for EMDEs to unlock productivity and efficiency gains. Trade environments remain less supportive in EMDEs than in advanced economies according to measures such as the costs (including time involved) of exporting and importing, the quality of trade- and transport-related infrastructure, and proxy measures (Figure 11). However, the average EMDE’s overall “trade across borders” score in the Doing Business survey improved by 11 percentage points between DB2007 and DB2020.

Some of this progress has been driven by trade-related reforms, again with increased momentum visible in the three years prior and during the global recession. Thus, the number of trade-related reforms in EMDEs increased from 24 to 37 between DB2008 and DB2010. However, these numbers imply that still only a minority of EMDEs were undertaking reforms that lowered the cost and time required to import and export. Reform momentum slowed after 2010. Since DB2017, however, there seems to have been some renewed vigor in trade reform, with the number of relevant reforms rising to 34 in that year. In contrast to these efforts to lower within-border trade-related costs, G20 economies have imposed a growing number of tariffs and non-tariff restrictions on trade (WTO 2019).

# 4.1.6 Energy subsidies

> 23 Reform spurts are improvements in one or more of the Worldwide Governance Indicators that are sufficiently large to exceed the country-specific average by more than 2 standard deviations. Reform setbacks are similarly-sized declines in the indicators.