Can a systematic approach to measuring governance be developed? How can data and rigorous analysis be used to support institutional reforms to curb corruption and improve governance? How can research methods move beyond anecdotal evidence to assess the quality of governance? This paper, written by World Bank researchers and appearing in the Finance and Development magazine of the International Monetary Fund, attempts to apply a systematic approach to measuring governance, its determinants and its consequences.
Weak governance and slow economic development go hand in hand, while improved governance fosters development success. Available indicators shed light on a fairly small number of broad concepts of governance including voice and accountability, political instability and violence, government effectiveness, regulatory burden, rule of law and control of corruption.
Each of the six indicators mentioned above provides some useful information on the broader concept of governance, the data is informative, otherwise we would not see such strong agreement across sources. A broad consensus emerges between, for instance, agency analysts, business and citizens within a country. There is enormous potential to use the available information to identify policy priorities, empower stakeholders and build political consensus for action. Others findings include:
- Although different sources measure governance in different units, statistical techniques allow us to anchor each set in a common set of units thus making them comparable.
- An “unobserved-components model” extracts statistical consensus. The resulting aggregate governance indicators summarise the data available and cover virtually all countries.
- The imprecision of the aggregate indicators does not imply they have limited value. They can identify groups of countries facing governance challenges.
- There is a large causal effect running from improved governance to better development outcomes. These include benefits of improved “citizen voice” on infant mortality and improved rule of law on per capita income.
Aggregate indicators based on existing sources of governance data are a powerful tool for drawing attention to relevant issues. They are indispensable for cross-country research into the causes and consequences of governance. However, they are a blunt tool to use in formulating policy advice. Moving forward, policy considerations should take note of the following:
- There is much scope to improve the quality of internationally comparable indicators. The “World Business Environment Survey” probes quantitatively into issues typically considered qualitative.
- The “World Business Environment Survey” covers some 10,000 firms in about 90 countries and elicits specific information about the share of bribes paid in total revenue.
- Country diagnostic tools can generate new information, build local capacity, develop policies and aid coalition building. Key ingredients are country-specific surveys carried out by domestic non-governmental organisations.
- Surveys of public officials are particularly relevant. Protected by anonymity, they are making a difference in persuading political establishments to take difficult reform decisions.
- The use of self-diagnostic data by various stakeholders has helped mobilise broader coalitions to support collective action and spur institutional reforms.
- The challenge lies in working with countries to empirically diagnose, identify and address failures at national, sub national and corporate levels and to understand the linkages between them.
