1 governance redux: the empirical challenge daniel kaufmann, world bank institute background...
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1
Governance Redux:The 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 e*governance participation prior to presentation/discussion on Wednesday, December 3rd:
1. Please take the 2-minute web-survey on anti-corruption, responding to a few questions, at: http://www.wbigf.org/hague/hague_survey.php3
2. 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
3. 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.
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
1. Governance can be measured, monitored, analyzed2. Aggregate and Disaggregated Governance Indicators: How constructed, interpreted -- & margins of error3. Governance Performance: major variation across
regions, countries & dimensions of governance
4. Lack of Worldwide/Regional Progress on Governance5. Data supports new research findings: Governance
Matters enormously for growth-- yet growth does not automatically translate into improved governance
6. Main Lessons learnt, 1: Over-estimated traditional Public Sector Management approaches
7. Main Lessons, 2: Underestimated role of: i) Politics (and its financing); ii) Private Sector; iii) Citizen Voice
Governance Redux: Outlining Key Themes
7
Empirical Approach to Governance
1. ‘Macro’: Worldwide Aggregate Governance Indicators: 200 countries, 6 components, periodically constructed
2. ‘Mezzo’: Cross-Country Surveys of Enterprises
3. ‘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 gov’t 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
12
Inputs for Governance Indicators 2002Publisher Publication Source Country Coverage
•Wefa’s 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
•Binghamton Univ. Human Rights Violations Research Survey 140 developed and developing
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
0
0.1
0.2
0.3
0.4
0.5
0.6
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Number of Sources
Sta
nd
ard
Err
or
of
Go
ve
rna
nc
e E
sti
ma
te
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
18
Large Margins of Error for Objective Governance Indicators
0
0.5
1
1.5
2
2.5
3
3.5
Telephone Waitline
Phone faults Trade Taxrevenue
BudgetaryVolatility
Revenue SourceVolatility
ContractIntensive Money
ContractEnforcement
Regulation ofEntry
AggregateIndicator
Stan
dard
err
or
Standard error Objective Indicator Scenario A
Standard error of Subjective indicator: KK 2002
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
Note: Confidence Interval: 90%
AF
G
AL
BD
ZA
AG
O
AR
G
AR
M
AU
SA
UT
AZ
E
BH
S
BH
R
BG
D
BLR
BE
L
BLZ
BO
L
BIH
BW
A
BR
A
BR
NB
GR
BF
A
BD
I
KH
M
CM
R
CA
N
CH
L
CH
N
CO
L
CO
G
CR
I
CIV
HR
V
CU
B
CY
P
CZ
E
DN
K
DO
M
EC
U
EG
Y
SLV
ER
I
ES
T
ET
H
FJI
FIN
FR
A
GA
B
GM
B
GE
O
DE
U
GH
A
GR
C
GT
M
GIN
GN
B
GU
Y
HT
I
HN
D
HK
G
HU
N
ISL
IND
IDN
IRN
IRQ
IRL
ISR
ITA
JAM
JPN
JOR
KA
Z
KE
N
PR
K
KO
R
KW
T
KG
Z
LA
O
LVA
LBN
LB
R
LBY
LTU
LUX
MK
D
MD
G
MW
I
MY
S
ML
I
MLT
MR
T
MU
S
ME
X
MD
A
MN
G
MA
R
MO
Z
MM
R
NA
M
NP
L
NLD
NZ
L
NIC
NE
R
NG
A
NO
R
OM
N
PA
K
PA
N
PN
G
PR
Y
PE
R
PH
L
PO
L
PR
T
PR
I
QA
T
RO
M
RU
S
RW
A
SA
U
SE
N
SL
E
SG
P
SV
K
SV
N
SO
M
ZA
F
ES
P
LK
A
SD
N
SU
R
SW
E
CH
E
SY
R
TW
N
TJK
TZ
A
TH
A
TG
O
TT
O
TU
N
TU
R
TK
M
UG
A
UK
R
AR
E
GB
R
US
A
UR
Y
UZ
B VE
N
VN
M
WT
B
YE
M
YU
G
ZA
R
ZM
B
ZW
E
0
0.25
0.5
0.75
1
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Pro
bab
ilit
y (0
-1)
-2.5
0
2.5
Co
ntr
ol o
f C
orr
up
tio
n R
atin
g
Median CC Score
Probability Country is in Top Half of Sample
Governance Score
Margin of Error
Control of Corruption Percentile Rank
20
Governance World Map :Control of Corruption, 2002
Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.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%
21Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.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%
Governance World Map :Political Stability/ Lack of Violence, 2002
22
Voice and Accountability. Rule of Law and Control of Corruption, Regional Averages, KK 2002
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.
-1
0
2
OECD East Asia(NIC)
East Asia dev. South Asia EasternEurope
FormerSoviet Union
Middle EastNorth Africa
LatinAmerica
Sub-SaharanAfrica
Voice and AccountabilityRule of LawControl of Corruption
Poor Governance
Good Governance
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
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.
Good
Bad
-2.5
0
2.5
25
Control of Corruption -- Selected Countries, KK 2002
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.
Good
Bad-2.5
0
2.5
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/governance/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/governance/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/governance/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/governance/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/governance/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
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
0
1.5
3
1984-1988 1989-1993 1994-1998 1999-2001
TRANSITION
EMERGING
OECD+NIC
Source: ‘Rethinking Governance’, based on calculations from WDI. Y-axis measures the log value of the average inflation for each region across each period
Significant Decline in Inflation Rates WorldwideHighInflation
Low
(avg. inlogs)
38
Extent of Independence of the Judiciary
2
4.5
7
1998 1999 2000 2001 2002 2003
Independent
Non-Independent
OECD
East AsiaIndustrialized
Transition
Emerging
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
0.00
0.25
0.50
0.75
1.00
1996 1998 2000 2002
Control of Corruption
Rule of LawGood
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, WorldwideIn
com
e pe
r ca
pita
Voice and Accountability Government Effectiveness Control of Corruption
Low Level of GovernanceMedium Level of GovernanceHigh Level of Governance
US$3,000
US$20,000
US$400
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).
43
5
6
7
8
9
10
-2 -1 0 1 2
Governance and Growth: Causality which way?
I.V.
I.V.
OLS
OLS
Growth on Governance
Governance on Growth ‘Bad History’
‘Bad History’
‘Good History’
‘Good History’
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/growthgov.htm
Quality of Rule of Law, 2000/01
Inco
me
Pe
r C
apit
a (
log
)
A
B
D
C
Low High
I.V.l
I.V.l
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…
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
0
5
10
15
20
25
Firms' Output Growth (3 yrs)
Low captureeconomies
High captureeconomies
Based on survey of transition economies, 2000
49
Working with Competitive Business Associations does Matter
0102030405060708090
Hungary Russia Azerbaijan
Business association members
(% of firms)
Active members Nonactive members
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
0
0.1
0.2
0.3
0.4
Sta
te C
aptu
re I
ndex
Partial Civil Libs High Civil Libs
Advanced
Partial
Slow
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
0 5 10 15 20 25
FDI LocalHQ
FDI ForeignHQ
DomesticFirms
Share of Captor Firms
High CaptureEconomiesLow CaptureEconomies
52
1
3
5
Low Medium High
Public Transparency and Corporate Ethics
Transparent Info [Gov't]
Parlament Effectiness
No State Capture
Corporate Ethics
Crecimiento Anual del PIB (%)
Corporate Ethics, Public Sector Transparency and Income Growth -- Worldwide
53
Illustration of “Mezzo” Approach to empirical work – From cross-country enterprise surveys to Institutional Clusters for
103 countries, 2003, preliminary, Chile rankings
0
50
100
Contr
ol of
corr
uption
Corpo
rate
Respo
nsib
/Gov
ernan
ce
Decen
traliz
ation
Enviro
nmen
t
Finan
cial S
ecto
r Cap
acity
Finan
cial G
over
nance
Gov
ernm
ent E
ffect
ivene
ss
Gen
der E
qual
ity
Hum
an C
apita
l
Multi
late
ral O
rgan
izatio
ns
Qua
lity o
f Inf
rastr
uctu
re
Legal
effe
ctive
ness
Qua
lity o
f lab
or m
arket
s
Politic
al Fin
ancin
g
Parlia
men
t Effe
ctiv
enes
s
Police
Effe
ctiv
enes
s
Politic
al In
fluen
ce
Regul
ator
y Cap
acity
Techn
ology
Tax ef
ficien
cy
Unoffi
ciald
om
Voice
& A
ccou
ntabi
lity
Per
cen
tile
Ran
k (
0-10
0)
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
0
50
100
Contr
ol of
corr
uption
Corpo
rate
Respo
nsib
/Gov
ernan
ce
Decen
traliz
ation
Enviro
nmen
t
Finan
cial S
ecto
r Cap
acity
Finan
cial G
over
nance
Gov
ernm
ent E
ffect
ivene
ss
Gen
der E
qual
ity
Hum
an C
apita
l
Multi
late
ral O
rgan
izatio
ns
Qua
lity o
f Inf
rastr
uctu
re
Legal
effe
ctive
ness
Qua
lity o
f lab
or m
arket
s
Politic
al Fin
ancin
g
Parlia
men
t Effe
ctiv
enes
s
Police
Effe
ctiv
enes
s
Politic
al In
fluen
ce
Regul
ator
y Cap
acity
Techn
ology
Tax ef
ficien
cy
Unoffi
ciald
om
Voice
& A
ccou
ntabi
lity
Per
cen
tile
Ran
k (
0-10
0)
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’ Level
In-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…Perceived level of honesty in public institutions(as reported by managers, public officials and households)
0% 10% 20% 30% 40%
Bank of Sierra Leone
Sierra Leone Broadcasting Service (SLBS)
Sierra Leone Water Company (SALWACO)
University of Sierra Leone
Ministry of Gender Social Welfare & Children’s Affairs
Law Officers Department
Income Tax Department
Surveys and Lands Department
Traffic police
Customs Department
% of respondents reporting the institution to be honest households public officials business
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.
0
20
40
60
80
100
10 20 30 40 50 60 70 80 90
Voice / External Accountability
Con
trol
of B
ribe
ry
ControlledCausalLink
r = 0.54
58
-5
0
5
10
15
20
LowModerately LowModerately HighHigh
Politicization
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.
60
Peru: Sources of Undue Private Influence on the State
10
40
70
100
DrugConglomerates
EconomicGroups
FDI/TransnationalCorporations
OrganizedCrime
ProfessnlAssociations
Labor Unions
% r
ep
ort
ing
ag
en
t is
hig
hly
infl
ue
nti
al
Firms Public officialsBased on governance diagnostic surveys of public officials and enterprises
Responses by:
61
Unbundling Governance: Ratings by Firms (2003)
0
20
40
60
80
100
Per
cent
ile R
ank
(0-1
00)
USA
Finland
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).
Good Rank
Poor
62
Control of Cronyism: Differences across industrialized countries (OECD)
0
50
100D
enm
ark
Aus
tria
Finl
and
Swed
en
Sing
apor
e
Bot
swan
a
Net
herl
ands
Aus
tral
ia
Ger
man
y
Uni
ted
Kin
gdom
Fran
ce
Uni
ted
Stat
es
Gre
ece
Ital
y
Perc
entil
e Ran
k
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 firm’s own business association.
No Cronyism
Cronyism
63
Capture, Political Influence and Cronyism: 4 countries
0
20
40
60
80
100
JudiciaryBribery
Illegal PoliticalFinancing
PoliticalFinancingInfluence
Crony Bias
Per
cent
ile R
ank
(0-1
00)
USA Chile
Finland Singapore
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).
Good Control
Poor
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
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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 work…a ‘list of 10’ for debate 1. Localize Know-how, Measure & Unbundle
2. Transparency Mechanisms (e*governance, data)
3. Voice and Democratic Accountability (& media)
4. Judicial Independence, Property Rights (RoL)
5. Prevention, Incentives (e.g. Meritocracy, Budget)
6. Political Reform, incl. Political Finance7. Private Sector & MNCs: Corporate Responsibility
8. Technical Innovations in Infrastructure Concessions
9. Compete in GG--joining world’s ‘Economic Clubs’
10. IFI, G-8, OECD Responsibility (Global Compact)
With modesty: learning, interdisciplinary approach
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Per
cap
ita
Inco
me
(log
, PP
P)
Control of Corruption
Sources: KK 2002 and Heston-Summers (2000)
Income per capita vs. Control of Corruption
High
HighLow
Low
ARGENTINA CHILE
INDIA
BANGLADESH
6
8.5
11
-2 0 2
r = .79
71
References and Links to full papers and further materials
• Governance Matters III: http://www.worldbank.org/wbi/governance/pubs/govmatters3.html
• Governance Matters: http://www.worldbank.org/wbi/governance/pubs/govmatters.html
• Aggregating Gov Indicators: http://www.worldbank.org/wbi/governance/pubs/aggindicators.html
• Growth without Governance: http://www.worldbank.org/wbi/governance/pubs/growthgov.html
• Governance Indicators Dataset: http://www.worldbank.org/wbi/governance/govdata2002/
• Governance Diagnostic Capacity Building: http://www.worldbank.org/wbi/governance/capacitybuild/