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The Good Governance Indicators of the Millennium Challenge Account: How many dimensions are really being measured


  • Knoll, Martin
  • Zloczysti, Petra


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 'participatory dimension of governance' and the '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.

Suggested Citation

  • Knoll, Martin & Zloczysti, Petra, 2011. "The Good Governance Indicators of the Millennium Challenge Account: How many dimensions are really being measured," Discussion Papers 2011/2, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:20112

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    4. Henry Kaiser, 1974. "An index of factorial simplicity," Psychometrika, Springer;The Psychometric Society, vol. 39(1), pages 31-36, March.
    5. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2007. "The worldwide governance indicators project : answering the critics," Policy Research Working Paper Series 4149, The World Bank.
    6. 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.
    7. 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.
    8. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2010. "Response to ‘What do the Worldwide Governance Indicators Measure?’," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 22(1), pages 55-58, February.
    9. 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.
    10. Stanislav Kolenikov, 2009. "Confirmatory factor analysis using confa," Stata Journal, StataCorp LP, vol. 9(3), pages 329-373, September.
    11. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank.
    12. M A Thomas, 2010. "What Do the Worldwide Governance Indicators Measure?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 22(1), pages 31-54, February.
    13. 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.
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    Cited by:

    1. Mundle, Sudipto & Chowdhury, Samik & Sikdar, Satadru, 2016. "Governance Performance of Indian States 2001-02 and 2011-12," Working Papers 16/164, National Institute of Public Finance and Policy.
    2. Knoll, Martin, 2013. "The heavily indebted poor countries and the multilateral debt relief initiative: A test case for the validity of the debt overhang hypothesis," Discussion Papers 2013/11, Free University Berlin, School of Business & Economics.
    3. Lebovic, James H., 2014. "The Millennium Challenge Corporation: Organizational Constraints on US Foreign Aid, 2004–11," World Development, Elsevier, vol. 58(C), pages 116-129.
    4. Slesman, Ly & Baharumshah, Ahmad Zubaidi & Ra'ees, Wahabuddin, 2015. "Institutional infrastructure and economic growth in member countries of the Organization of Islamic Cooperation (OIC)," Economic Modelling, Elsevier, vol. 51(C), pages 214-226.
    5. Michener, Gregory, 2015. "Policy Evaluation via Composite Indexes: Qualitative Lessons from International Transparency Policy Indexes," World Development, Elsevier, vol. 74(C), pages 184-196.
    6. Ward, Hugh & Dorussen, Han, 2015. "Public Information and Performance: The Role of Spatial Dependence in the Worldwide Governance Indicators among African Countries," World Development, Elsevier, vol. 74(C), pages 253-263.
    7. repec:eee:ecmode:v:64:y:2017:i:c:p:610-625 is not listed on IDEAS
    8. Gisselquist, Rachel M., 2013. "Evaluating Governance Indexes: Critical and Less Critical Questions," WIDER Working Paper Series 068, World Institute for Development Economic Research (UNU-WIDER).
    9. Huck-ju Kwon & Eunju Kim, 2014. "Poverty Reduction and Good Governance: Examining the Rationale of the Millennium Development Goals," Development and Change, International Institute of Social Studies, vol. 45(2), pages 353-375, March.

    More about this item


    Aid Allocation; Governance Indicators; Factor Analysis; MCA;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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