Governance Indicators, Aid Allocation, and the Millennium Challenge Account

Aid works best when it is directed to countries with relatively good institutions and policies. But how should good governance be measured, and how can aid allocation rules be designed in light of the strengths and weaknesses of existing measures? We address in brief a number of methodological and applied challenges, motivated by the U.S. government's recent proposal to allocate resources from the new Millennium Challenge Account (MCA), the issues and recommendations apply more broadly. Among others, we discuss the implications of margins of error in governance data, the difficulties in measuring trends, and the need to complement existing cross-country indicators with in-depth country diagnostics.Millennium Challenge Account, MCA, Aid Effectiveness, Aid Allocation, Governance Indicators, Governance Data

Governance indicators : where are we, where should we be going ?

Scholars, policymakers, aid donors, and aid recipients acknowledge the importance of good governance for development. This understanding has spurred an intense interest in more refined, nuanced, and policy-relevant indicators of governance. In this paper we review progress to date in the area of measuring governance, using a simple framework of analysis focusing on two key questions: (i) what do we measure? and, (ii) whose views do we rely on? For the former question, we distinguish between indicators measuring formal laws or rules'on the books', and indicators that measure the practical application or outcomes of these rules'on the ground', calling attention to the strengths and weaknesses of both types of indicators as well as the complementarities between them. For the latter question, we distinguish between experts and survey respondents on whose views governance assessments are based, again highlighting their advantages, disadvantages, and complementarities. We also review the merits of aggregate as opposed to individual governance indicators. We conclude with some simple principles to guide the refinement of existing governance indicators and the development of future indicators. We emphasize the need to: transparently disclose and account for the margins of error in all indicators; draw from a diversity of indicators and exploit complementarities among them; submit all indicators to rigorous public and academic scrutiny; and, in light of the lessons of over a decade of existing indicators, to be realistic in the expectations of future indicators.Governance Indicators,National Governance,Public Sector Corruption&Anticorruption Measures,Economic Policy, Institutions and Governance,Banks&Banking Reform

Growth without governance

It is well known that there is a strong positive correlation between per capita incomes and the quality of governance across countries. the authors propose an empirical strategy that allows separation of this correlation into (1) a strong positive causal effect running from better governance to higher per capita incomes, and, perhaps surprisingly at first, (2) a weak and even negative causal effect running in the opposite direction from per capita incomes to governance. The first result confirms existing evidence on the importance of good governance for economic development. The second result is new and suggests the absence of a"virtuous circle"in which higher incomes lead to further improvements in governance. This motivates the authors'choice of title,"Growth Without Governance."They document this evidence using a newly updated set of worldwide governance-indicators covering 175 countries for the period 2000-01, and use the results to interpret the relationship between incomes and governance focusing on the Latin America and Caribbean region-within a worldwide empirical context. Finally, the authors speculate about the potential importance of elite influence and state capture in accounting for the surprising negative effects of per capita incomes on governance, present some evidence on such capture in some Latin American countries, and suggest priorities for actions to improve governance when such pernicious elite influence shapes public policy.Decentralization,Banks&Banking Reform,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures,Municipal Financial Management,Governance Indicators,Economic Policy, Institutions and Governance,National Governance,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures

On Measuring Governance: Framing Issues for Debate

This paper proposes three principles for users and producers of governance indicators that both summarize the challenges in measurement and suggest ways forward: (1) all governance indicators have measurement error, (2) there are no silver bullets, and (3) the links from governance to development outcomes are complex. An overarching message is that alternative governance indicators should be viewed as complements rather than substitutes.

The worldwide governance indicators : methodology and analytical issues

This paper summarizes the methodology of the Worldwide Governance Indicators (WGI) project, and related analytical issues. The WGI cover over 200 countries and territories, measuring six dimensions of governance starting in 1996: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, GovernmentEffectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. The aggregate indicators are based on several hundred individual underlying variables, taken from a wide variety of existing data sources. The data reflect the views on governance of survey respondents and public, private, and NGO sector experts worldwide. The WGI also explicitly report margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. Even after taking these margins of error into account, the WGI permit meaningful cross-country and over-time comparisons. The aggregate indicators, together with the disaggregated underlying source data, are available at www.govindicators.org.Governance Indicators,National Governance,Public Sector Corruption&Anticorruption Measures,Economic Policy, Institutions and Governance,Statistical&Mathematical Sciences

Governance Matters III: Governance Indicators for 1996-2002

This paper presents estimates of six dimensions of governance covering 199 countries and territories for four time periods: 1996, 1998, 2000, and 2002. These indicators are based on several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. We assign these individual measures of governance to categories capturing key dimensions of governance, and use an unobserved components model to construct six aggregate governance indicators in each of the four periods. We present the point estimates of the dimensions of governance as well as the margins of errors for each country for the four periods. The governance indicators reported here are an update and expansion of our previous work, part of a research project on indicators initiated in 1998 (Kaufmann, Kraay and Zoido-Lobatón 1999a,b and 2002). We also address various methodological issues, including the interpretation and use of the data given the estimated margins of errors. The data, as well as a web-based graphical interface, are available at www.worldbank.org/wbi/governance/govdata2002/.

Governance matters VIII : aggregate and individual governance indicators 1996-2008

This paper reports on the 2009 update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2008: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. These aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 33 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. They find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. The aggregate indicators, together with the disaggregated underlying indicators, are available at www.govindicators.org.Governance Indicators,National Governance,Public Sector Corruption&Anticorruption Measures,Economic Policy, Institutions and Governance,Banks&Banking Reform

The worldwide governance indicators project : answering the critics

The Worldwide Governance Indicators, reporting estimates of six dimensions of governance for over 200 countries between 1996 and 2005, have become widely used among policymakers and academics. They have also attracted some explicit written criticisms. In this short paper the authors synthesize 11 critiques offered by four recent papers. They then refute them as either conceptually incorrect or empirically unsubstantiated.Governance Indicators,National Governance,Statistical&Mathematical Sciences,Economic Policy, Institutions and Governance,Public Sector Corruption&Anticorruption Measures

Government matters III : governance indicators for 1996-2002

The authors present estimates of six dimensions of governance covering 199 countries and territories for four time periods: 1996, 1998, 2000, and 2002. These indicators are based on several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. The authors assign these individual measures of governance to categories capturing key dimensions of governance and use an unobserved components model to construct six aggregate governance indicators in each of the four periods. They present the point estimates of the dimensions of governance as well as the margins of errors for each country for the four periods. The governance indicators reported here are an update and expansion of previous research work on indicators initiated in 1998 (Kaufmann, Kraay, and Zoido-Lobat 1999a,b and 2002). The authors also address various methodological issues, including the interpretation and use of the data given the estimated margins of errors.Decentralization,Statistical&Mathematical Sciences,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures,Scientific Research&Science Parks,Governance Indicators,Economic Policy, Institutions and Governance,Scientific Research&Science Parks,Science Education,National Governance

Measuring Governance Using Cross-Country Perceptions Data

This paper describes an ongoing project to measure governance using crosscountry perceptions data. The governance indicators measure six dimensions of governance and cover 209 countries and territories for 1996-2004. They are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 different organizations. We present the estimates of governance, and the margins of error capturing the range of likely values for each country. We show how these margins of error should be taken into account when considering cross-country differences and changes over time in governance. We find that in a number of countries the quality of governance improved significantly in the short term. Yet deteriorations also took place in some other countries, while in many there was little change. There has been no worldwide improvement in governance on average. We argue that perceptions-based data provide valuable insights relative to objective data on governance, and that individual objective measures of governance provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure. We also show that margins of error are not unique to perceptions based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. We also empirically investigate the importance of ideological biases in expert assessments of corruption and find little evidence that they are present. Governance indicators and per capita incomes are highly correlated across countries. Recent research shows that this correlation captures an important causal effect running from measures of governance such as these to per capita incomes. Critics of this view argue that the correlation captures substantial reverse causation from incomes to governance, and is tainted by "halo effects" where rich countries receive good ratings simply because they are rich. We review available evidence on these two critiques and find it to be lacking.