Governance Redux: The Empirical Challenge

1
Governance ReduxThe Empirical Challenge

• Daniel Kaufmann, World Bank Institute
• www.worldbank.org/wbi/governance
• Background Handout for presentation and
  discussion at the Anti-Corruption Core Course to
  be held at The World Bank, December
  1st-3rd, Washington, D.C.

2
Power of Data Participatory Web-Interactivity

• Requests for your egovernance participation
  prior to presentation/discussion on Wednesday,
  December 3rd
• Please take the 2-minute web-survey on
  anti-corruption, responding to a few questions,
  at http//www.wbigf.org/hague/hague_survey.php3
• Review the instant results of this (from 1,000s
  of respondents so far), and ponder on the
  differences and/or similarities between your and
  the rest of the respondents
• Select one country of your current work/expertise
  at http//info.worldbank.org/governance/kkz2002/
  sc_country.asp
• and generate the indicators, review them to
  ascertain wether the percentile ranks on each of
  the 6 governance dimensions (of your chosen
  country) concords with your priors on the
  country.

3
Governance and Anticorruption in the World
Bank Evolution
JDW joins WB (7/95)
WDR 97 Public Sector
Governance Strategy (00)
Power of Evidence Development Impact
1st Participatory Action- Oriented A-C Core
Program (Africa 7 countries) 1999

• Budget, Procurement FM Reforms
• Diagnostic/Data/ Monitoring Tools
• Administrative Civil Service Reform
• Civil Society Voice, Accountability, Media
  Transparency Mechanisms
• Judicial/Legal Reform
• State Capture/Corporate Governance

JDW Cancer of Corruption Speech (10/96)
WDR on Institutions 1982
TI CPI (5/95)
Anti-corruption Strategy (97)
Broadening Mainstreaming
The Prohibition Era
Legal Judiciary Reforms
1st set of firms Debarred from WB projects
WB INT created (3/01)
1970
1980
1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
We have traversed and progressedyet
4
Examples of programs of support by the World Bank
in many countries
Latvia (anticorruption)
Russia (customs/treasury)
Ukraine (tax admin)
Albania (public admin.)
Kyrgyz Republic (governance reform)
Jordan (civil society)
Cambodia (PE forestry)
Ghana (PE accountability)
Philippines (transport)
Guatemala (diagnostic to action program)
Indonesia (local governance)
Gabon (water/electricity)
Bangladesh (civil society)
Colombia (diagnostics civil society)
Uganda (PRSC education)
Pakistan (devolution)
India Andra Pradesh (power e-gov) Karnataka
(right to info)
Bolivia (public admin.)
Tanzania (PSR)
Ethiopia (decentralization)
5
The Bank has been very involved with many clients
in Governance and A-C for the past 6 years

• And there are many products, diagnostics,
  operations, and some successes to show for it
• Yet the evidence, on balance, is rather sobering
• Need to learn from the lessons, and from the
  analysis of data gathered i) little progress on
  average? ii) if so, why (other than relatively
  short period of time has elapsed)? and, iii)
  looking ahead, what could we do differently?
• This presentation, based on an empirical
  approach, is intended to elicit debate and
  discussion around these key issues

6

Governance Redux Outlining Key Themes

• Governance can be measured, monitored, analyzed
• Aggregate and Disaggregated Governance
  Indicators
• How constructed, interpreted -- margins of
  error
• Governance Performance major variation across
  regions, countries dimensions of governance
• Lack of Worldwide/Regional Progress on Governance
• Data supports new research findings Governance
  Matters enormously for growth-- yet growth does
  not automatically translate into improved
  governance
• Main Lessons learnt, 1 Over-estimated
  traditional Public Sector Management approaches
• Main Lessons, 2 Underestimated role of i)
  Politics (and its financing) ii) Private Sector
  iii) Citizen Voice

7
Empirical Approach to Governance

• Macro Worldwide Aggregate Governance
  Indicators 200 countries, 6 components,
  periodically constructed
• Mezzo Cross-Country Surveys of Enterprises
• Micro Specialized, in-depth, in-country
  Governance and Institutional Capacity
  Diagnostics. It includes surveys of i) user of
  public services (citizens) ii) firms, and,
  iii) public officials

On Aggregate/Macro Level first
8
Governance A working definition

• Governance is the process and institutions by
  which authority in a country is exercised
• (1) the process by which governments are
  selected, held accountable, monitored, and
  replaced
• (2) the capacity of govt to manage resources and
  provide services efficiently, and to formulate
  and implement sound policies and regulations
  and,
• (3) the respect for the institutions that govern
  economic and social interactions among them

9
Operationalizing Governance Unbundling its
Definition into Components that can be measured,
analyzed, and worked on

• Each of the 3 main components of Governance
  Definition is unbundled into 2 subcomponents
• Democratic Voice and (External) Accountability
• Political Instability, Violence/Crime Terror
• Regulatory Burden
• Government Effectiveness
• Corruption
• Rule of Law

We measure these six governance components
10
Sources of Governance Data

• Subjective data on governance from 25 different
  sources constructed by 18 different organizations
• Data sources include cross-country surveys of
  firms, commercial risk-rating agencies,
  think-tanks, government agencies, international
  organizations, etc.)
• Over 200 proxies for various dimensions of
  governance
• Organize these measures into six clusters
  corresponding to definition of governance, for
  four periods 1996, 1998, 2000, and 2002,
  covering up to 199 countries

11
Sources of Governance Data

• Cross-Country Surveys of Firms Global
  Competitiveness Survey, World Business
  Environment Survey, World Competitiveness
  Yearbook, BEEPS
• Cross-Country Surveys of Individuals Gallup
  International, Latinobarometro, Afrobarometer
• Expert Assessments from Commercial Risk Rating
  Agencies DRI, PRS, EIU, World Markets Online,
• Expert Assessments from NGOs, Think Tanks
  Reporters Without Borders, Heritage Foundation,
  Freedom House, Amnesty International
• Expert Assessments from Governments,
  Multilaterals World Bank CPIA, EBRD, State Dept.
  Human Rights Report

12
Inputs for Governance Indicators 2002

• Publisher Publication Source Country Coverage
• Wefas DRI/McGraw-Hill Country Risk
  Review Poll 117 developed and developing
• Business Env. Risk Intelligence
  BERI Survey 50/115 developed and developing
• Columbia University Columbia U. State Failure
  Poll 84 developed and developing
• World Bank Country Policy Institution
  Assmnt Poll 136 developing
• Gallup International Voice of the
  People Survey 47 developed and developing
• Business Env. Risk Intelligence
  BERI Survey 50/115 developed and developing
• EBRD Transition Report Poll 27 transition
  economies
• Economist Intelligence Unit Country
  Indicators Poll 115 developed and developing
• Freedom House Freedom in the World Poll 192
  developed and developing
• Freedom House Nations in Transit Poll 27
  transition economies
• World Economic Forum/CID Global Competitiveness
  Survey 80 developed and developing
• Heritage Foundation Economic Freedom
  Index Poll 156 developed and developing
• Latino-barometro LBO Survey 17 developing
• Political Risk Services International Country
  Risk Guide Poll 140 developed and developing
• Reporters Without Borders Reporters sans
  frontieres (RSF) Survey 138 developed and
  developing
• World Bank/EBRD BEEPS Survey 27 transition
  economies
• IMD, Lausanne World Competitiveness Yearbook
  Survey 49 developed and developing

13
Ingredients for Rule of Law Indicator
Type of Questions
14
Building Aggregate Governance Indicators

• Use Unobserved Components Model (UCM) to
  construct composite governance indicators, and
  margins of error for each country
• Estimate of governance weighted average of
  observed scores for each country, re-scaled to
  common units
• Weights are proportional to precision of
  underlying data sources
• Precision depends on how strongly individual
  sources are correlated with each other
• Margins of error reflect (a) number of sources in
  which a country appears, and (b) the precision of
  those sources

15
Precision and Number of Sources Rule of Law,
KK 2002
16
Margins of Error Are Not Unique to Subjective
Indicators

• There are potential objective/quantitative
  indicators of governance, yet subject to
  significant margins of error and measurement
  issues, which also need to be addressed
• For instance--
• Regulatory Quality Days to start a business
• Rule of Law Contract-intensive money (share of
  M2 held in banking system, confidence in property
  rights protection)
• Government Effectiveness Stability of budgetary
  revenue and expenditure shares (policy
  instability), share of trade taxes in revenue
  (narrow tax base)
• Like all indicators, they are imperfect proxies
  for broader notions of governance and so have
  implicit margins of error relative to these
  broader concepts

17
Measurement Error for Objective Indicators
Known Correlation of objective subjective
standard error of subjective indicator Unknown
standard error of objective indicator
Corrltn
18
Large Margins of Error for Objective Governance
Indicators
Option A estimate of standard deviation of
measurement error in subjective indicator is
correct. Option C standard deviation of
measurement error in subjective indicator is
twice as large as that in the objective
indicator. The standard error of subjective
indicator refers to the Governance component
closely related to the associated objective
indicator
19
Assigning Countries to Governance Categories
Margins of Error Matter
1
2.5
FIN
Probability Country is in
SWE
ISL
SGP
NLD
NZL
Top Half of Sample
DNK
CAN
CHE
GBR
LUX
NOR
Margin of Error
ESP
USA
CHL
0.75
DEU
Governance Score
NAM
CYP
JPN
PRT
PRI
IRL
HKG
FRA
ISR
SVN
FJI
Probability (0-1)
CRI
TUN
EST
GRC
URY
WTB
HUN
ITA
KWT
QAT
TWN
MUS
TTO
MAR
OMN
POL
KOR
ZAF
RWA
KHM
CZE
SVK
Control of Corruption Rating
LTU
0.5
0
GIN
GMB
MYS
MLT
SUR
ARE
GNB
MWI
MOZ
JOR
HRV
LKA
BRA
LVA
JAM
PER
CUB
BGR
EGY
BRN
Median CC Score
MNG
DOM
GHA
MEX
CHN
LAO
NPL
SLV
SAU
COL
IND
SEN
ETH
MLI
PAN
GUY
SLE
THA
TUR
TGO
COG
PHL
MKD
ROM
GAB
LBR
VEN
HND
IRN
LBN
UZB
CIV
GEO
GTM
YEM
VNM
NIC
PAK
HTI
KAZ
MDA
SYR
KGZ
ZMB
PRK
LBY
UKR
TZA
UGA
BFA
MDG
ERI
MRT
PRY
ECU
IDN
RUS
YUG
NGA
TJK
NER
ZWE
0.25
CMR
KEN
TKM
IRQ
SOM
MMR
PNG
SDN
ZAR
BDI
0
-2.5
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Control of Corruption Percentile Rank
Note Confidence Interval 90
20
Governance World Map Control of Corruption, 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Map downloaded from
http//info.worldbank.org/governance/kkz2002/govma
p.asp Colors are assigned according to the
following criteria Red, 25 or less rank worse
( bottom 10 in darker red) Orange, between 25
and 50 Yellow, between 50 and 75 Light
Green between 75 and 90 Dark Green above 90
21
Governance World Map Political Stability/ Lack
of Violence, 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Map downloaded from
http//info.worldbank.org/governance/kkz2002/govma
p.asp Colors are assigned according to the
following criteria Red, 25 or less rank worse
( bottom 10 in darker red) Orange, between 25
and 50 Yellow, between 50 and 75 Light
Green between 75 and 90 Dark Green above 90
22
Voice and Accountability. Rule of Law and Control
of Corruption, Regional Averages, KK 2002
Good Governance
Poor Governance
Source Governance Research Indicators (KK)
based from data in D. Kaufmann, A. Kraay and M.
Mastruzzi, 'Governance Matters III Updated
Indicators for 1996-2002', for 199 countries,
details at http//www.worldbank.org/wbi/governance
/pubs/govmatters3.html. Units in vertical axis
are expressed in terms of standard deviations
around zero. Country and regional average
estimates are subject to margins of error
(illustrated by thin line atop each column),
implying caution in interpretation of the
estimates and that no precise country rating is
warranted.
23
In emerging economies, while on average little
progress, there are excellent examples, and
possible to learn from variation

• The cases of Slovenia, Baltic countries, Costa
  Rica, S. Korea, Chile, Mauritius, Botswana, etc

24
Control of Corruption -- Selected Countries, KK
2002
Good
Bad
Source for data Kaufmann D., Kraay A., Mastruzzi
M., Governance Matters III Governance
Indicators for 1996-2002, WP 3106, August 2003.
Units in vertical axis are expressed in terms of
standard deviations around zero. Country
estimates are subject to margins of error
(illustrated by thin line atop each column),
implying caution in interpretation of the
estimates and that no precise country rating is
warranted.
25
Control of Corruption -- Selected Countries, KK
2002
Good
Bad
Source for data Kaufmann D., Kraay A., Mastruzzi
M., Governance Matters III Governance
Indicators for 1996-2002, WP 3106, August 2003.
Units in vertical axis are expressed in terms of
standard deviations around zero. Country
estimates are subject to margins of error
(illustrated by thin line atop each column),
implying caution in interpretation of the
estimates and that no precise country rating is
warranted.
26
Governance Indicators Indonesia
Note the thin lines depict 90 confidence
intervals. Colors are assigned according to the
following criteria Red, 25th percentile Orange,
between 25th and 50th percentile Yellow,
between 50th and 75th percentile Light Green
between 75th and 90th percentile Dark Green
above 90th percentile.Chart downloaded from
http//info.worldbank.org/governance/kkz/.
27
Governance Indicators Croatia, 1998 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Colors are assigned
according to the following criteria Dark Red,
bottom 10th percentile rank Light Red between
10th and 25th Orange, between 25th and 50th
Yellow, between 50th and 75th Light Green
between 75th and 90th Dark Green above 90th.
28
Indicadores de Governança Brasil, 1998 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Colors are assigned
according to the following criteria Dark Red,
bottom 10th percentile rank Light Red between
10th and 25th Orange, between 25th and 50th
Yellow, between 50th and 75th Light Green
between 75th and 90th Dark Green above 90th.
29
Indicadores de Governança Jordânia, 1996, 2000
2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Colors are assigned
according to the following criteria Dark Red,
bottom 10th percentile rank Light Red between
10th and 25th Orange, between 25th and 50th
Yellow, between 50th and 75th Light Green
between 75th and 90th Dark Green above 90th.
30
Governance Indicators Slovenia, 1998 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Colors are assigned
according to the following criteria Dark Red,
bottom 10th percentile rank Light Red between
10th and 25th Orange, between 25th and 50th
Yellow, between 50th and 75th Light Green
between 75th and 90th Dark Green above 90th.
31
Governance Indicators Chile 1998 vs. 2002
Source for data http//www.worldbank.org/wbi/gove
rnance/govdata2002 Colors are assigned
according to the following criteria Dark Red,
bottom 10th percentile rank Light Red between
10th and 25th Orange, between 25th and 50th
Yellow, between 50th and 75th Light Green
between 75th and 90th Dark Green above 90th.
32
In emerging economies, while on average little
progress, there are excellent examples, and
possible to learn from variation

• In Africa, Mauritius, Botswana, Mali, and also
  countries like Madagascar, Mali, and some others
  making progress in some dimensions
• Slovenia, Hungary, Costa Rica, S. Korea
• The case of Chile
• Learning from the world over
• .rethinking capacity building.

33
The Mezzo Level of Measurement

• -- Listening to Firms
• -- Large Cross-country Survey of Enterprises
• -- Significant More Unbundling is possible
• -- Stay mindful of Margins of Error

34
Political Influence and Capture by Powerful
Firms of Firms Report Undue Influence and
Capture
Firms Reporting Poor Rating
Source EOS, 2003.
35
The Governance Gap Overall Evidence is
Sobering Progress on Governance is modest at
best, so far

• Evidence points to slow, if any, average
  progress worldwide on key dimensions of
  governance
• This contrasts with some other developmental
  dimensions (e.g. quality of infrastructure
  quality of math/science education effective
  absorption of new technologies), where progress
  is apparent
• At the same time, substantial variation
  cross-country, even within a region. Some
  successes.
• And it is early days.

36
Significant Decline in Inflation Rates Worldwide
High Inflation
(avg. in logs)
Low
Source Rethinking Governance, based on
calculations from WDI. Y-axis measures the log
value of the average inflation for each region
across each period
37
Quality of Infrastructure
Source EOS 1997-2003 (Quasi-balanced panel).
Question 6.01 General infrastructure in your
country is among the best in the world?
38
Extent of Independence of the Judiciary
Source EOS 1998-2003 (Quasi-balanced panel).
Question 5.01 The judiciary in your country is
independent from political influences of members
of government, citizens or firms?
39
Rule of Law and Corruption have not improved
recently
Good
Poor
Why should we be concerned?
40
Does Good Governance Really Matter?Worldwide
Evidence Improved Governance, Public and
Private, makes an enormous difference in Per
Capita Incomes of Nations

• Good Governance Pays The 400 Dividend
• The reverse causality does not hold
  -- No Evidence that Higher Incomes/Richer
  countries automatically results in improved
  governance

41
Governance Indicators and Income per Capita,
Worldwide
High
Low
Sources Kaufmann D., Kraay A., Mastruzzi M.,
Governance Matters III Governance Indicators
for 1996-2002 (KK 2002) Income per capita (in
Purchasing Power Parity terms) obtained from
Heston-Summers (2000) and CIA World Factbook
(2001).
42
Governance and Growth the endogeneity challenge
disentangling causality

• Growth without Governance Recent research
  paper (with A. Kraay, drawing on KKZ)
• Incomes p.c. Governance highly correlated
• Empirical Methodology to separate causality
  direction effects i) I.V. , ii) non-sample
  info., thanks to having governance measurement
  errors estimation
• Surprising Results, begging an explanation

43
Governance and Growth Causality which way?
Income Per Capita (log)
Quality of Rule of Law, 2000/01
Source KKZ 2000/01 Governance Indicators and D.
Kaufmann and A. Kraay, Growth without
Governance, Economia 3(1) 169-229.
http//www.worldbank.org/wbi/governance/pubs/growt
hgov.htm
44
Why non-positive effect of Income growth on
Governance State Capture Unequal Influence

• Elites Vested Interest National Governance
  Interest
• State Capture Undue Influence implies that
  elites appropriate fruits of growth
• Such fruits are not funneled to improve public
  governance, furthering Capture Unequal
  Influence
• Thus, when growth takes place in captured
  settings, governance will not automatically
  improve (no virtuous circle)
• Thus, we need to understand, measure draw
  implications from the institutions of influence
  and capture

45
Recognizing the Challenge of State Capture

• Upon assuming power almost 3 years ago..
• Vladimir Putins statement to Russias business
  leaders
• I only want to draw your attention straightaway
  to the fact that you have yourselves formed this
  very state, to a large extent through political
  and quasi-political structures under your
  control, so perhaps what one should do least of
  all is blame the mirror.

46
On the Notion and Empirical Relevance of State
Capture

• Defining State Capture Influential firms that
  shape the formation of rules of the game (laws,
  regulations and policies of the state) to their
  advantage -- through illicit, non-transparent
  private payments to officials/politicians
• Includes the following measurable
  manifestations
• purchase of legislative votes
• purchase of executive decrees
• purchase of major court decisions
• illicit political party financing
• Illicit influence on Central Bank
  policies/regulations

47
The Mezzo Level of Measurement

• -- Listening to Firms
• -- Large Cross-country Survey of Enterprises
• -- Significant More Unbundling is possible
• -- Stay mindful of Margins of Error

48
Very high Economic Cost of Capture for Private
Sector Development and Growth
Based on survey of transition economies, 2000
49
Working with Competitive Business Associations
does Matter
Source J. Hellman, G. Jones, D. Kaufmann. 2000.
Seize the State, Seize the Day State Capture,
Corruption and Influence in Transition World
Bank Policy Research Working Paper 2444.
50
Addressing Capture Economic Reform, Political
Competition Voice/Civil Liberties Matter
Pace of Econ Reform
Political/Civil Liberties Reforms
51
Foreign Firms do not always help improve
governance in recipient country Evidence from
transition economies beeps survey, 1999
52
Corporate Ethics, Public Sector Transparency and
Income Growth -- Worldwide
Crecimiento Anual del PIB ()
53
Illustration of Mezzo Approach to empirical
work From cross-country enterprise surveys to
Institutional Clusters for 103 countries, 2003,
preliminary, Chile rankings
Source EOS 2003 WEF, preliminary. Percentile
ranks based on comparative performance among the
103 countries in the sample. All variables
rated from 0 (very bad) to 100 (excellent).
54
Illustration of Mezzo Approach to empirical
work From cross-country enterprise surveys to
Institutional Clusters for 103 countries, 2003,
preliminary, Peru rankings
Source EOS 2003 WEF, preliminary. Percentile
ranks based on comparative performance among the
103 countries in the sample. All variables
rated from 0 (very bad) to 100 (excellent).
55
On the Micro LevelIn-depth, in-country
Diagnostics Surveys of citizens/users of
public services, enterprises and public officials
(complementing Worldwide Aggregate Governance
Indicators, and Mezzo cross-country enterprise
surveys)

56
Diagnostic evidence from Sierra Leone
57
External Accountability/Feedback Mechanisms Help
Control Bribery (Bolivia in-depth country
diagnostic)
Based on Public Officials Survey from Bolivia
diagnostic. Separate project, this is to
illustrate importance of complementing worldwide
indicators with in-depth country diagnostics.
Each dot reflects rating of a public institutions
in Bolivia.
58
New Diagnostic Tools permit measuring important
dimensions of capacity illustration 1 from
Bolivia diagnostics How Politicized Agencies
exhibit Budgetary Leakages
Yellow columns depict the unconditional average
for each category. Blue line depicts the
controlled causal effect from X to Y variables.
Dotted red lines depict the confidence ranges
around the causal effect depicted by the blue
line.
59
Transparency within Government Agencies Prevents
Purchase of Public Positions (Bolivia diagnostics)
Based on 90 national, departmental, and municipal
agencies covered in the Public Officials Survey.
60
Peru Sources of Undue Private Influence on the
State
Responses by
Based on governance diagnostic surveys of public
officials and enterprises
61
Unbundling Governance Ratings by Firms (2003)
Good Rank
Poor
Preliminary, based on a survey of firms.
Percentile ranks based on comparative performance
among the 102 countries in the sample. All
variables rated from 0 (very bad) to 100
(excellent).
62
Control of Cronyism Differences across
industrialized countries (OECD)
No Cronyism
Cronyism
Crony Bias constructed based on data from EOS,
2003, in 102 countries, calculated as the
difference between influence by firms with
political ties and influence by the firms own
business association.
63
Capture, Political Influence and Cronyism 4
countries
Good Control
Poor
Preliminary, based on a survey of firms.
Percentile ranks based on comparative performance
among the 102 countries in the sample. All
variables rated from 0 (very bad) to 100
(excellent).
64
Political Influence by Powerful Firms of
Firms Report Undue Influence of Political
Financing and Politically Connected firms
Firms Reporting Poor Rating
Source EOS, 2003.
65
Income vs. Campaign Finance Transparency All
States in USA
Source Center For Public Integrity
www.stateprojects.org (Nationwide Numbers) and US
Census, 2000.
66
Some Key Lessons from Empirical Research

• Consequences Costs of Misgovernance and
  Corruption
• Lower Incomes, Investment Poverty Inequality
• But no automatic virtuous circle (from incomes)
• Determinants of Misgovernance and Corruption
• Capture and Undue Influence by Vested Interests
• No Voice, Press Freedoms, Devolution,
  Transparency
• Low Professionalism of Public Service
• No Example from the Top / Lack of Leadership
• Easy and Gradualist Panaceas
• But Endogeneity is a challenge Searching for
  more fundamental determinants political,
  historical variables

67
No Evidence to support some popular notions

1. Constant drafting of new A-C laws/regulations
2. Creating many new Commissions Agencies
3. Globalization, Privatization, Reforms as Culprits
4. Cultural Relativism (Corruption is
   culturally-determined)
5. Historical Determinism

by contrast, what appears to be important
68
What may worka list of 10 for debate

• Localize Know-how, Measure Unbundle
• Transparency Mechanisms (egovernance, data)
• Voice and Democratic Accountability ( media)
• Judicial Independence, Property Rights (RoL)
• Prevention, Incentives (e.g. Meritocracy,
  Budget)
• Political Reform, incl. Political Finance
• Private Sector MNCs Corporate Responsibility
• Technical Innovations in Infrastructure
  Concessions
• Compete in GG--joining worlds Economic Clubs
• IFI, G-8, OECD Responsibility (Global Compact)
• With modesty learning, interdisciplinary
  approach

69
Identifying Institutional Vulnerabilities and
Economic Fragility the Governance Deficit
High
Low
High
Low
Source KKZ 2000/01 Governance Indicators, and
Kaufmann and Kraay, Growth without Governance.
70
Income per capita vs. Control of Corruption
High
r .79
Per capita Income (log, PPP)
Low
High
Low
Control of Corruption
Sources KK 2002 and Heston-Summers (2000)
71
References and Links to full papers and further
materials

• Governance Matters III http//www.worldbank.org/w
  bi/governance/pubs/govmatters3.html
• Governance Matters http//www.worldbank.org/wbi/g
  overnance/pubs/govmatters.html
• Aggregating Gov Indicators http//www.worldbank.o
  rg/wbi/governance/pubs/aggindicators.html
• Growth without Governance http//www.worldbank.or
  g/wbi/governance/pubs/growthgov.html
• Governance Indicators Dataset http//www.worldban
  k.org/wbi/governance/govdata2002/
• Governance Diagnostic Capacity Building
  http//www.worldbank.org/wbi/governance/capacitybu
  ild/

72
Data for Analysis and informing Policy Advise,
not for Precise Rankings

• Data in this presentation is from aggregate
  governance indicators, surveys, and expert polls
  and is subject to a margin of error. It is not
  intended for precise comparative rankings across
  countries, but to illustrate performance
  measures to assist in drawing implications for
  strategy. It does not reflect official views on
  rankings by the World Bank or its Board of
  Directors. Errors are responsibility of the
  author(s), who benefited in this work from
  collaboration with many Bank staff and outside
  experts.
• www.worldbank.org/wbi/governance