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The Good Governance Indicators of the Millennium Challenge Account: How Many Dimensions Are Really Being Measured?

  • Martin Knoll
  • Petra Zloczysti

This paper assesses the validity of the perception-based governance indicators used by the US Millennium Challenge Account (MCA) for aid allocation decisions. By conducting Explanatory and Confirmatory Factor Analysis of data from 1996 to 2009, we find that although the MCA purports to measure seven distinct dimensions of governance, only two discrete underlying dimensions, the perceived 'participatory dimension of governance' and the perceived 'overall quality of governance,' can be identified. Our results also show that some of the doubts that have been raised concerning the validity of perception-based governance indicators are less warranted when the indicators are applied exclusively to developing countries.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.377900.de/dp1148.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1148.

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Length: 44 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1148
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  1. Laura Langbein & Stephen Knack, 2010. "The Worldwide Governance Indicators: Six, One, or None?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 350-370.
  2. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank.
  3. Stas Kolenikov, 2006. "Confirmatory factor analysis in Stata," North American Stata Users' Group Meetings 2006 4, Stata Users Group.
  4. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  5. Chhotray, Vasudha & Hulme, David, 2009. "Contrasting Visions for Aid and Governance in the 21st Century: The White House Millennium Challenge Account and DFID's Drivers of Change," World Development, Elsevier, vol. 37(1), pages 36-49, January.
  6. N. Hermes & R. Lensink, 2001. "Changing the Conditions for Development Aid: A New Paradigm?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 1-16.
  7. Henry Kaiser, 1974. "An index of factorial simplicity," Psychometrika, Springer, vol. 39(1), pages 31-36, March.
  8. Michela Nardo & Michaela Saisana & Andrea Saltelli & Stefano Tarantola & Anders Hoffman & Enrico Giovannini, 2005. "Handbook on Constructing Composite Indicators: Methodology and User Guide," OECD Statistics Working Papers 2005/3, OECD Publishing.
  9. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2010. "Response to ‘What do the Worldwide Governance Indicators Measure?’," The European Journal of Development Research, Palgrave Macmillan, vol. 22(1), pages 55-58, February.
  10. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
  11. M A Thomas, 2010. "What Do the Worldwide Governance Indicators Measure?," The European Journal of Development Research, Palgrave Macmillan, vol. 22(1), pages 31-54, February.
  12. Michael A. Clemens & Steven Radelet, 2003. "The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough?," Working Papers 23, Center for Global Development.
  13. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2007. "The worldwide governance indicators project : answering the critics," Policy Research Working Paper Series 4149, The World Bank.
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