Impact of Local Governance Quality on Economic Development

Abstract

Historically, good governance has been seen as a significant factor, or building block, of a longer-term and sustainable economy; however, the effects of good governance on the experiences of ordinary citizens living in secondary cities in India remain largely unexplored. This research examines how individuals who have benefited from urban development programmes in Mangalore (Mangaluru), Dakshina Kannada District, Karnataka, perceive their local government, as well as whether those perceptions can be linked to measurable improvements in their economic well-being. Through a stratified random sample of 400 beneficiaries of the Mangaluru Smart City Mission, PMAY-U, DAY-NULM, and related projects (2024-2025), the WGI framework developed by the World Bank was used to assess and adapt six Worldwide Governance Indicators (WGI’s) to the local context of Mangaluru. Additionally, a composite governance index was established, as well as an economic development index (EDI) including indicators of income growth, job stability, asset accumulation, and access to credit.A mixed-methods explanatory sequential design was employed. Primary data came from a bilingual, pre-tested questionnaire administered in person and through mobile-assisted interviewing between January and March 2025. Secondary data were sourced from the (Karnataka, 2026), Mangalore City Corporation reports, and district statistical handbooks. Reliability was robust (Cronbach’s α > 0.82), and validity was established through expert review and exploratory factor analysis (KMO = 0.89).
Responders bore very positive impressions of all three components of local governmental processes ([mean composite rating = 3.68/5). Most highly regarded by the respondents were the constructs: effectiveness of government and control of corruption. Ordered multiple linear regression analysis, after controlling for various socio-demographic variables, shows an increase of one unit in the composite measure of local governance is correlated to an increase of 0.42 units on the Economic Development Index (EDI) (β = 0.42, p < .001) and accounts for 58% of the variance. Effectiveness of government (β = 0.221) and control of corruption (β = 0.236) are both the two strongest predictors of the EDI score. Additionally, a significant positive bivariate correlation exists between the all adaptations of the World Governance Indicator Constructs (correlation coefficient range = r = 0.41-0.68).
The study results support the theoretical perspectives (North 1990; Acemoglu & Robinson 2012) of inclusive institutions being important, and similarly extend the Indian literature base (Vashistha & Bishnoi, 2025; Mallick 2023) to secondary urban cities. These findings are also consistent with the current evaluations of the Smart Cities Mission which suggest a need for implementation focused on the citizen beyond infrastructure (Government of India, 2025). In addition, it provides policymakers recommendations that include the use of digital transparency tools, conducting annual social audits, building capacity to urban local authorities and implementing performance-based funding through Smart Cities Mission 2.0. Although the limitations of cross-sectional data and self-reporting exist, the findings offer concrete evidence for improving urban governance in Karnataka's tier-II cities.