| Summary: | Our understanding of governance in developing countries is weak and frequently misguided. That international donors are paying attention to governance is important, but many observers limit themselves to the ways in which governance enhances markets. Governance is certainly necessary for market development, but governments at times perform other functions, including replacing markets and protecting social norms from market transactions. In addition to a limited notion of governance, methods of measuring governance frequently limit themselves to quantitative indicators. This misses the variety of sequences and interactions by which states and markets are built and the unique socio-cultural ways in which governance is likely to operate at different places and times. Finally, we need to be far more aware of the way in which Northern actions, even guided by good intentions, weaken governance in the South. Certain kinds of trade and aid may actually undermine governance rather than enhance it. Of particular worry is Northern impact on taxes and tax administration in the South. Aid modalities, such as fragmented project aid, dolittle to enhance governance and may worsen it. Further, insisting onexemptions for materials, services, and incomes purchased with aid, as many donors do, worsens governance.
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