corruption within a governance frameworksiteresources.worldbank.org/intwbigovantcor/... · 11...

1

Corruption within a Governance Framework:

Practical Lessons from Empirical Evidence

Daniel Kaufmann, World Bank Institute

www.worldbank.org/wbi/governance

Presentation at the Seminar on ‘Tackling Corruption Worldwide: From 0 to Hero’, St

Hugh’s College, Oxford, March 21st 2004

2

The ‘Prohibition’ Era

1970 1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003

WDR on Institutions 1982

JDW “Cancer of Corruption”Speech (10/96)

State in a Changing World (97)

• Public Expenditure, Financial Mgt. & Procurement Reforms

• Diagnostic/Data/ Monitoring Tools

• Administrative & Civil Service Reform

• Civil Society Voice, Accountability, Media & Transparency Mechanisms

• State Capture/Corporate Governance

• Legal/Judicial Reform

Broadening & Mainstreaming

The initial ascent … getting to base camp …

TI CPI (5/95)

Anti-corruption Strategy (97)

Governance Strategy (00)

1st set of firms Debarred from WB (99)

Formalization of INT (01)

Strategic Compact (97)

O.P. Mainstreaming AC in CAS (99)

Governance Pillar - CDF (98)

Internal AC unit created in WB (98)

Gov/A-C Diagnostics start (98)

3

Latvia (anticorruption)

Russia (customs/treasury)

India – Andra Pradesh (power; e-gov); Karnataka (right to info)

Colombia (diagnostics& civil society)

Indonesia(local governance)

Uganda (PRSC; education)

Jordan (civil society)

Explosion of activities: Examples of major programs launched across countries

Pakistan(devolution)

Philippines (transport)

Ghana (PE accountability)

Bolivia: (public admin.)

Albania(public admin.)

Guatemala(diagnostic to

action program)

Tanzania(PSR)

Ethiopia (decentralization)

Cambodia (PE; forestry)

Ukraine (tax admin)

Bangladesh(civil society)

Gabon(water/electricity)

Kyrgyz Republic (governance reform)

5

A A ‘‘LiveLive’’ Test:Test:‘‘CultureCulture’’, Information and Incentives:, Information and Incentives:

•• You are approaching your car in the empty and You are approaching your car in the empty and unattended garage late at night unattended garage late at night

•• You see an envelope on the floor, and you pick it upYou see an envelope on the floor, and you pick it up

•• It contains 20 bills of US $100 each. It contains 20 bills of US $100 each.

•• If no possibility that anyone would know: No If no possibility that anyone would know: No cameras, no monitoring, no reportingcameras, no monitoring, no reporting

•• What would you do with such envelope full of What would you do with such envelope full of cash?cash?

6

50% Undecided 33% Report and Return Funds

17% Keep

A. If no possibility that anyone would know:A. If no possibility that anyone would know:You are alone, there is no monitoring, cameras, or possibilityYou are alone, there is no monitoring, cameras, or possibility of of resportingresporting

Option Finder Results: Various Audiences

7

B. If B. If 30%30% probability that information is shared probability that information is shared (e.g. 30% that camera recording info which may be reviewed(e.g. 30% that camera recording info which may be reviewed))

74% Report and Return Funds

22% Undecided

4% Keep

8

Most effective Anticorruption Measures?Responses from Officials and Leaders in 62 countries

20%

30%

40%

50%

60%

70%

80%

90%

Privatizacion Voz ylibertadesciviles

ReformasPublicas

Transparenciapresupuestaria

Economiadesregulada

Liderazgoejemplar

% d

e en

trev

ista

do

s q

ue

dan

un

alto

gra

do

Fuente: D. Kaufmann, ‘Corruption: The Facts’, Foreign Policy, Verano, 1997

Comisiones Anti-corrupcion

9

1. Governance can be measured, monitored, analyzed2. Aggregate and Disaggregated Governance Indicators:

How constructed, interpreted -- & margins of error3. Governance Performance Variations across regions,

countries & dimensions of governance4. Progress on Governance and Anti-Corruption?5. Limits to Generalized Worldwide & Regional Analyses?6. Key Research Findings and Addressing Myths 7. Main Lessons, 1: Over-estimated traditional Legal

and Public Sector Management strategies?8. Main Lessons, 2: Underestimated role of: i) Politics

(and its financing); ii) Private Sector; iii) Transparency and Citizen Voice Mechanisms

Governance Redux: Outlining Key Themes

10

Empirical Approach to Governance

1. ‘Macro’: Worldwide Aggregate Governance Indicators: 200 countries, 6 components, periodic.

2. ‘Mezzo’: Cross-Country Surveys of Enterprises

3. ‘Micro’: Specialized, in-depth, in-country Governance and Institutional Capacity Diagnostics: Includes surveys of: i) user of public services (citizens); ii) firms, and iii) public officials On ‘Aggregate/Macro’ Level first…

11

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

12

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 LawWe measure these six governance components…

13

Sources of Governance Data• 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

14

Sources of Governance Data

• Cross-Country Surveys of Firms: Global Competitiveness Survey, World Business Environment Survey, World Competitiveness Yearbook, BEEPS

• Cross-Country Surveys of Individuals: Gallup International, Latinobarometro, Afrobarometer

• Expert Assessments from Commercial Risk Rating Agencies: DRI, PRS, EIU, World Markets Online,

• Expert Assessments from NGOs, Think Tanks: Reporters Without Borders, Heritage Foundation, Freedom House, Amnesty International

• Expert Assessments from Governments, Multilaterals:World Bank CPIA, EBRD, State Dept. Human Rights Report

15

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

16

Ingredients for Rule of Law IndicatorSurveys of FirmsBEEPS Courts Honest? Crime? Property rights

protected?Global Competitiveness Survey Crime, money laundering, judicial

independence, protection of financial assets

W orld Competitiveness Yearbook Justice fairly administered, personal security and private property protected

Surveys of IndividualsGallup Trust in legal system

Risk Rating AgenciesBERI Contract enforcementDRI Costs of crime, enforceability of contractsEIU Costs of crime, enforceability of contracts,

property rights protectionPRS Law and orderW orld Markets Observer Judicial independence, crime

Think TanksFreedom House Rule of lawHeritage Foundation Property rights, black market activity

GovernmentsState Dept Human Rights Report Judicial independence

Type of Questions

17

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

18

Unobserved Components Model• Observed indicator k of governance in country j,

y(j,k), is noisy indicator of true governance in country j, g(j):

• Variance in measurement errors is same across countries for each source, but different across sources:

• Identifying assumption: Measurement errors are uncorrelated across sources ? highly correlated sources measure governance with more precision

( )y j k g j j k( , ) (k) (k) ( ) ( , )= + ⋅ +α β ε

[ ] )k()k,j(E 22εσ=ε

19

Estimates of Governance from UCM• UCM allows us to infer the distribution of

governance in a country conditional on the observed data for that country

• Best estimate of governance is the mean of this conditional distribution:

• So estimate of governance is weighted average of re-scaled scores, with weights proportional to precision of each source:

∑= β

α−⋅=

)j(K

1k )k()k()k,j(y

)k(w))]j(K,j(y),...,1,j(y|)j(g[E

∑=

−ε

−ε

σ+

σ=

)j(K

1k

2

2

)k(1

)k()k(w

20

Precision of Estimates from UCM

• Reliability or precision of estimate of governance for each country is the standard deviation of this conditional distribution:

• These standard errors are smaller for countries that (a) appear in more sources, and/or (b) appear in more reliable sources

21

)j(K

1k

2)k(1))]j(K,j(y),...,1,j(y|)j(g[SD−

=

−ε

σ+= ∑

21

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

vern

ance

Est

imat

e

22

Assigning Countries to Governance Categories: Margins of Error Matter

Note: Confidence Interval: 90%

AFG

AL

BD

ZA

AG

O

AR

G

AR

M

AU

SA

UT

AZE

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

LAO

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

TP

RI

QA

T

RO

M

RU

S

RW

A

SA

U

SE

N

SL

E

SG

P

SV

K

SV

N

SO

M

ZAF

ES

P

LK

A

SD

N

SU

R

SW

E

CH

E

SY

R

TW

N

TJK

TZ

A

TH

ATG

O

TTO

TU

N

TU

R

TKM

UG

A

UK

R

AR

E

GB

R

US

A

UR

Y

UZ

B VE

N

VN

M

WT

B

YE

M

YU

G

ZAR

ZMB

ZWE

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

ility

(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

23

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

Sta

nd

ard

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

24

Measurement Error for Objective Indicators

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1Correlation of "Subjective" and "Objective" Indicator

Sta

nd

ard

Err

or

for

"Ob

jec

tiv

e"

Ind

ica

tor

Days to Start Business

Contract Intensive Money

Actual S.E. for RL = 0.3

Actual S.E. for RQ = 0.4

( ) ( )22

21

2

111

σ+⋅σ+=ρCorrltn:

Known: Correlation of objective & subjective; standard error of subjective indicatorUnknown: standard error of objective indicator

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

Control of Corruption: Selected Countries, 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.

27

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%

28



29



30Source 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

31

Governance World Map :Voice and Accountability, 2002


32

Governance World Map : Africa and Middle East, Government Effectiveness, 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: 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.

33

Governance World Map : Africa and Middle East, Regulatory Quality, 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: 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.

34

Governance Indicators By RegionsPercentile Ranks, 2002

0

50

100

OECD

East A

sia (N

IC)

East A

sia de

v.

Form

er So

viet U

nion

Eastern

Europ

e

Midd

le East

Nor

th Afri

ca

Subsa

haran

Afri

ca

Latin A

merica

Per

cen

tile

Ran

k

Voice And Accountability

Control of Corruption

Source for data: Kaufmann D., Kraay A., Mastruzzi M., Governance Matters III: Governance Indicators for 1996-2002, WP #3106, August 2003

Good

Poor

35

Governance Indicators: Chile 1998 vs. 2002



36

Governance Indicators: Bolivia 1996, 2000 & 2002



37

Governance Indicators: Croatia, 1998 & 2002



38

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/.

39

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

40

Unbundling Corruption – [Regional Averages]Preliminary results 2003, View of the Firm, 102 countries

0

35

70

East AsiaIndustrialized

O ECD East AsiaDeveloping

EasternEurope

Latin America South Asia Sub-saharanAfrica

Former SovietUnion

% of firms rating type of corruption as high/very high

Access Public Utilities

Procurement

Capture of Laws & Regulations

Extent of Bribery for:

Source: EOS 2003. Each region has the following number of countries: OECD: 23; East Asia (Developing): 6, East Asia (NIC): 4; Eastern Europe: 14; Former Soviet Union: 2 (Russia and Ukraine); South Asia: 4; Sub-Saharan Africa: 21; Middle East North Africa: 7; Latin America and Caribbean: 21.

41

Political Influence by Powerful Firms, EOS 2003

0

50

100

Argenti

na

Botswan

aBraz

il

Camero

on

Colombia

Costa R

icaCroa

tia

Finlan

d

Nigeria

Russian

Feder

ation USA

Zimba

bwe

Influencing political financing

Bribery to shape laws

Source: EOS, 2003. Y axis: % of firms who reported a poor rating (1,2,3) for each of the underlying governance variables.

% firms Reporting Poor Rating

42

Control of Cronyism: Differences across industrialized countries (OECD)

0

50

100D

enm

ark

Au

stri

a

Fin

lan

d

Sw

eden

Sin

ga

po

re

Bo

tsw

an

a

Net

her

lan

ds

Au

stra

lia

Ger

ma

ny

Un

ited

Kin

gd

om

Fra

nce

Un

ited

Sta

tes

Gre

ece

Italy

Per

cen

tile

Ra

nk

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

43

The ‘Governance Gap’: Overall Evidence is SoberingProgress 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.

44

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)

45

Quality of Infrastructure

1.5

4

6.5

1997 1998 1999 2000 2001 2002 2003

High

Low


OECD

Transition

Emerging

Source: EOS 1997-2003 (Quasi-balanced panel). Question 6.01: General infrastructure in your country is among the best in the world?

46

Extent of Independence of the Judiciary

2

4.5

7

1998 1999 2000 2001 2002 2003

Independent

Non-Independent

OECD


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?

47

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?…

48

In emerging economies, while on average little progress, there are excellent examples,

and possible to learn from variation

• In Africa, Mauritius, Botswana as stars, Ghana has made some inroads, as well as Mali and to an extent Madagascar; Sierra Leone and a few others making some progress in some dimensions?

• In other continents, the cases of Slovenia, Hungary, the 3 Baltic countries, Costa Rica, S. Korea, Chile

49

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)

50

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

51

Corruption is a ‘Regressive TaxCorruption is a ‘Regressive Tax’’ (Colombia)

0

2

4

6

8

10

12

14

16

18

Bajo Ingreso Mediano Ingreso Alto Ingreso

Bajo Ingreso Mediano Ingreso Alto Ingreso

52

-5

0

5

10

15

20

Low Moderately Low Moderately High High

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.

53

Illustration of empirical analysis based on diagnostic: Illustration of empirical analysis based on diagnostic: UsersUsers’’ Feedback to Public Agencies Helps Control BriberyFeedback to Public Agencies Helps Control Bribery

Based on 90 national, departmental, and municipal agencies covered in the Bolivia Public Officials Survey.

10

20

30

40

50

Low Moderate_Low Moderate_High High

Voice / External Accountability

Bri

bery

Simple Average Association Control Causal Link Margin of Error

54

Citizen Voice Improves Accessibility of Public Services to the Poor

Based on Public Officials Survey. The sample of institutions includes 44 national, departmental, and municipal agencies which are a prior anticipated to be accessible to the poor

0

20

40

60

80

100

10 20 30 40 50 60 70 80 90

Voice / External Accountability

Acc

essi

bilit

y to

the

Poo

r

ControlledCausalLink

r = 0.54

55

Transparency within Government Agencies Prevents Purchase of Public Positions

Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

3

6

9

12

15

18

Low Moderately Low Moderately High High

Internal Transparency

Job

Pu

rch

ase

Simple Average Association Control Causal Link Margin of Error

56

Peru: Sources of Undue Private Influence on the State

10

40

70

100

DrugConglomerates

EconomicGroups

FDI/TransnationalCorporations

OrganizedCrime

ProfessnlAssociations

Labor Unions

% r

epo

rtin

g a

gen

t is

hig

hly

infl

uen

tial

Firms Public officialsBased on governance diagnostic surveys of public officials and enterprises

Responses by:

57

Some Key Lessons from Empirical Research

Consequences and Costs of Misgovernance:• 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 a challenge: Need to search for more

fundamental determinants: political, historical variables

58

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

59

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).

60

Child Mortality vs. anti-Corruption: One-directional causality

AFG

DZA

AGO

ATG

BGD

BRA

BDI

CMR

CAN

CAFTCD

CHL

CHN

COGZAR

CRI

HRV

DNK

DOM

EGY

ES T

ETH

FIN

FRA

GHA

GTM

GIN

HTI

IS L

IRN

IRQ

ITA

CIV

J AM

PRK

KOR

LBR

LBY

MRTMMR

NLD

NER

NGA

NOR

P AK

P ER

P HL

RUS

RWA

S LE

S VN

S OM

ZAFS DN

TUN

TKM

UGA

GBR

US A

URY

VEN

YEM

ZMB

ZWE

-2.5 0.0 2.5Control of Corruption

Ch

ild

Mo

rtal

ity

per

1,0

00 b

irth

s (l

og

)

Source: KK 2002, WDI 2002

Low High

r = -0.77

0

10

200

61

Source of Women’s Right Variable: Stohl, Michael (Convenor) Global Studies Program, Global Governance of Human Rights

Women Rights and Corruption Control

AGO

ARE

ARG

AUSAUT

BEL

BFA

BGD

BHR

BOL

BWA

CANCHE

CHL

CHNCIV

CMR

COG

COL

CRI

CZE

DEU

DNK

DOMDZA

ECUEGY

ESP

FIN

FRA

GAB

GBR

GHA

GIN

GNB

GRC

GTM

HND

HTI

HUN

IDN

IND

IRL

IRN

•IRQ

ISR

ITA

JOR

JPN

KEN

KOR

KWT

LBY

LKA

MAR

MEX

MLI

MMR

MYS

NER

NGA

NLD

NORNZL

PAKPAN

PHL

POL

PRT

PRY

RUS

SAUSDN

SEN

SLE

SWE

SYR

TGO

THATUN

TZA

URY

USA

VEN

YEM

YUGZMB

ZWE

R2

= 0.38

0

1

2

3

4

5

6

7

8

9

4 4.5 5 5.5 6 6.5 7

Women Social and Economic Rights, 1990s

Cor

rupt

ion

Inde

x (I

CR

G, 1

990s

) 10

62

Controlling Corruption and Voice and Accountability

0

40

80

Low Average High

Con

trol

of

Cor

rup

tion

Good

Poor

Voice and Accountability

63

Freedom of the Press to improve Rule of Law and Controlling Corruption

0

40

80

Not Free Average Free

Per

cent

ile R

ank

Rule of LawControl of Corruption

Sources: Freedom House, 2002 and KK2002

Good

Poor

64

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1990 1991 1993 1994 1995

US$ per student

Intended grant Actual grant received by primary school (means)

1999

Source: Uganda Public Expenditure Tracking Surveys

Tracking Education Dollars in Uganda

Transparency and Citizen Oversight

Public info campaign

65

No Evidence to support some ‘popular’ notions

1. Constant drafting of new A-C laws/regulations

2. Creating many new Commissions & Agencies

3. Blaming Globalization or Privatization

4. Cultural Relativism (or Regional Characteristics)

5. Historical Determinism

…by contrast, what may be particularly important…

66

What may work…a ‘list of 10’ for debate

1. Localize Know-how, and Unbundle notions2. 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. Compete -- to join world’s ‘Economic Clubs’9. IFI, G-8, OECD Responsibility (Global Compact)

10. With modesty: learning, interdisciplinary approach

67

On the growing gap between EU-accession countries and the rest of transition --Rule of Law Over Time, Selected Regions, 1996-2002

-1

0

1

2

1996 1998 2000 2002

Rul

e of

Law

OECD

East Asia (NIC)

Transition EUAccession Countries

Sub-Saharan Africa

Other TransitionCountries

Source for data: http://www.worldbank.org/wbi/governance/govdata2002.

Each region has the following number of countries: OECD: 28; East Asia (Developing): 35, East Asia (NIC): 4; Eastern Europe: 16;Former Soviet Union: 12; South Asia: 8; Sub-Saharan Africa: 47; Middle East North Africa: 21; Latin America and Caribbean: 38.

High

Low

68

Illustration of Concrete Projects and Measures promoting Transparency and Accountability

• Transparency & reform in political/party finance: e.g. new methods for disclosure (expenses), etc.

• E*disclosure (web) of votes of parliamentarians

• Public Disclosure of Assets/Incomes by public officials and legislators and their dependents

• E*procurement; e*data.governance; diagnostics

• In-depth Institutional Country Diagnostics for Agency and Budgetary transparency

• Delisting Firms Publicly

69

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.

70

New Empirical Frontiers

• Political Finance, Capture & Corruption

• Subnational Level: ‘Governance and the City’

• The Human Rights Nexus

71

Data for Analysis and informing Policy Advise, not for Precise Rankings

Data in this presentation is from aggregate governance indicators, surveys, and expert polls and is subject to a margin of error. It is not intended for precise comparative rankings across countries, but to illustrate performance measures to assist in drawing implications for strategy. It does not reflect official views on rankings by the World Bank or its Board of Directors. Errors are responsibility of the author(s), who benefited in this work fromcollaboration with many Bank staff and outside experts.

www.worldbank.org/wbi/governance

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