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Measuring Governance Using Cross-Country Perceptions Data

  • Kaufmann, Daniel
  • Kraay, Aart
  • Mastruzzi, Massimo

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.

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File URL: http://mpra.ub.uni-muenchen.de/8219/1/MPRA_paper_8219.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8219.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:8219
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  1. Kaufmann, Daniel & Kraay, Aart, 2002. "Growth without governance," Policy Research Working Paper Series 2928, The World Bank.
  2. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
  3. Francisco Alcalá & Antonio Ciccone, 2003. "Trade and Productivity," Working Papers 12, Barcelona Graduate School of Economics.
  4. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  5. Daniel Kaufmann & Shang-Jin Wei, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers 00/64, International Monetary Fund.
  6. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
  7. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," NBER Working Papers 10568, National Bureau of Economic Research, Inc.
  8. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
  9. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-92, April.
  10. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  11. Goldberger, Arthur S, 1972. "Maximum-Likelihood Estimation of Regressions Containing Unobservable Independent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 1-15, February.
  12. Miriam A. Golden & Lucio Picci, 2005. "Proposal For A New Measure Of Corruption, Illustrated With Italian Data," Economics and Politics, Wiley Blackwell, vol. 17, pages 37-75, 03.
  13. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  14. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  15. Clague, Christopher & Keefer, Philip & Knack, Stephen & Olson, Mancur, 1999. "Contract Intensive Money," MPRA Paper 25717, University Library of Munich, Germany.
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