1. 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 1 st -3 rd, Washington, D.C.

2. 2 ‘Power of Data’: Participatory Web-Interactivity Requests for your e*governance participation prior to presentation/discussion on Wednesday, December 3 rd : 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 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 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.

3. 3 Legal & Judiciary Reforms The ‘Prohibition’ Era 197019801990199519961997199819992000200120022003 WDR on Institutions 1982 JDW joins WB (7/95) JDW “Cancer of Corruption” Speech (10/96) WDR ‘97 Public Sector Budget, Procurement & FM Reforms Diagnostic/Data/ Monitoring Tools Administrative & Civil Service Reform Civil Society Voice, Accountability, Media & Transparency Mechanisms Judicial/Legal Reform State Capture/Corporate Governance Broadening & Mainstreaming Governance and Anticorruption in the World Bank: Evolution TI CPI (5/95) Anti-corruption Strategy (97) Governance Strategy (00) 1st set of firms Debarred from WB projects 1 st Participatory & Action- Oriented A- C Core Program (Africa – 7 countries) 1999 WB INT created (3/01) Power of Evidence: Development Impact We have traversed and progressed…yet…

4. 4 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) Examples of programs of support by the World Bank in many 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. 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. 6 1.Governance can be measured, monitored, analyzed 2.Aggregate and Disaggregated Governance Indicators: How constructed, interpreted -- & margins of error 3.Governance Performance: major variation across regions, countries & dimensions of governance 4.Lack of Worldwide/Regional Progress on Governance 5.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. 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. 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. 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. 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

11. 11 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

12. 12 Inputs for Governance Indicators 2002 PublisherPublicationSourceCountry Coverage Wefa’s DRI/McGraw-Hill Country Risk ReviewPoll117 developed and developing Business Env. Risk Intelligence BERISurvey50/115 developed and developing Columbia University Columbia U. State Failure Poll84 developed and developing World Bank Country Policy & Institution AssmntPoll 136 developing Gallup International Voice of the PeopleSurvey 47 developed and developing Business Env. Risk Intelligence BERISurvey50/115 developed and developing EBRDTransition ReportPoll27 transition economies Economist Intelligence UnitCountry IndicatorsPoll 115 developed and developing Freedom HouseFreedom in the WorldPoll192 developed and developing Freedom HouseNations in TransitPoll27 transition economies World Economic Forum/CIDGlobal Competitiveness Survey80 developed and developing Heritage FoundationEconomic Freedom IndexPoll156 developed and developing Latino-barometro LBOSurvey17 developing Political Risk ServicesInternational Country Risk GuidePoll140 developed and developing Reporters Without Borders Reporters sans frontieres(RSF)Survey138 developed and developing World Bank/EBRDBEEPSSurvey27 transition economies IMD, LausanneWorld Competitiveness Yearbook Survey 49 developed and developing Binghamton Univ. Human Rights Violations ResearchSurvey 140 developed and developing

13. 13 Ingredients for Rule of Law Indicator Type of Questions

14. 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. 15 Precision and Number of Sources: Rule of Law, KK 2002

16. 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

17. 17 Measurement Error for Objective Indicators Corrltn: Known: Correlation of objective & subjective; standard error of subjective indicator Unknown: standard error of objective indicator

18. 18 Large Margins of Error for Objective Governance Indicators 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. 19 Assigning Countries to Governance Categories: Margins of Error Matter Note: Confidence Interval: 90% BRA BRN BGR BFA BDI KHM CMR CAN CHL CHN COL COG CRI CIV HRV CUB CYP CZE DNK DOM ECU EGY SLV ERI EST ETH FJI FIN FRA GAB GMB GEO DEU GHA GRC GTM GIN GNB GUY HTI HND HKG HUN ISL IND IDN IRN IRQ IRL ISR ITA JAM JPN JOR KAZ KEN PRK KOR KWT KGZ LAO LVA LBN LBR LBY LTU LUX MKD MDG MWI MYS MLI MLT MRT MUS MEX MDA MNG MAR MOZ MMR NAM NPL NLD NZL NIC NER NGA NOR OMN PAK PAN PNG PRY PER PHL POL PRT PRI QAT ROM RUS RWA SAU SEN SLE SGP SVK SVN SOM ZAF ESP LKA SDN SUR SWE CHE SYR TWN TJK TZA THA TGO TTO TUN TUR TKM UGA UKR ARE GBR USA URY UZB VEN VNM WTB YEM YUG ZAR ZMB ZWE 0 0.25 0.5 0.75 1 00.10.20.30.40.50.60.70.80.91 Probability (0-1) -2.5 0 2.5 Control of Corruption Rating Median CC Score Probability Country is in Top Half of Sample Governance Score Margin of Error Control of Corruption Percentile Rank

20. 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.asphttp://www.worldbank.org/wbi/governance/govdata2002http://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%

21. 21 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asphttp://www.worldbank.org/wbi/governance/govdata2002http://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. 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. Poor Governance Good Governance

23. 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. 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

25. 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

26. 26 Governance Indicators: Indonesia Note: the thin lines depict 90% confidence intervals. Colors are assigned according to the following criteria: Red, 25 th percentile; Orange, between 25 th and 50 th percentile; Yellow, between 50 th and 75 th percentile; Light Green between 75 th and 90 th percentile; Dark Green above 90 th percentile.Chart downloaded from : http://info.worldbank.org/governance/kkz/.

27. 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 10 thhttp://www.worldbank.org/wbi/governance/govdata2002 percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

28. 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 10 thhttp://www.worldbank.org/wbi/governance/govdata2002 percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

29. 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 10 thhttp://www.worldbank.org/wbi/governance/govdata2002 percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

30. 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 10 thhttp://www.worldbank.org/wbi/governance/govdata2002 percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

31. 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 10 thhttp://www.worldbank.org/wbi/governance/govdata2002 percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

32. 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. 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

34. 34 Political Influence and Capture by Powerful Firms: % of Firms Report Undue Influence and Capture Source: EOS, 2003. % Firms Reporting Poor Rating

35. 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. 36 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 Worldwide High Inflation Low (avg. in logs)

37. 37 Quality of Infrastructure Source: EOS 1997-2003 (Quasi-balanced panel). Question 6.01: General infrastructure in your country is among the best in the world?

38. 38 Extent of Independence of the Judiciary 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. 39 Rule of Law and Corruption have not improved recently Good Poor Why should we be concerned?…

40. 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. 41 Governance Indicators and Income per Capita, Worldwide 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).

42. 42 Governance and Growth: the endogeneity challenge – disentangling causality ‘Growth without Governance’: Recent research paper (with A. Kraay, drawing on KKZ) Incomes p.c. & Governance highly correlated Empirical Methodology to separate causality direction effects: i) I.V. &, ii) non-sample info., thanks to having governance measurement errors estimation Surprising Results, begging an explanation…

43. 43 Governance and Growth: Causality which way? I.V. OLS Growth on Governance Governance on Growth ‘Bad 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 Income Per Capita (log) A B D C Low High I.V. l

44. 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…

45. 45 Recognizing the Challenge of State Capture Upon assuming power almost 3 years ago…..: Vladimir Putin’s statement to Russia’s business leaders: “I only want to draw your attention straightaway to the fact that you have yourselves formed this very state, to a large extent through political and quasi-political structures under your control, so perhaps what one should do least of all is blame the mirror.”

46. 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. 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. 48 Very high Economic Cost of Capture for Private Sector Development and Growth Based on survey of transition economies, 2000

49. 49 Working with Competitive Business Associations does Matter 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. 50 Addressing Capture: Economic Reform, Political Competition & Voice/Civil Liberties Matter Pace of Econ Reform Political/Civil Liberties Reforms

51. 51 Foreign Firms do not always help improve governance in recipient country Evidence from transition economies – beeps survey, 1999

52. 52 Crecimiento Anual del PIB (%) Corporate Ethics, Public Sector Transparency and Income Growth -- Worldwide

53. 53 Illustration of “Mezzo” Approach to empirical work – From cross-country enterprise surveys to Institutional Clusters for 103 countries, 2003, preliminary, Chile rankings 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. 54 Illustration of “Mezzo” Approach to empirical work – From cross-country enterprise surveys to Institutional Clusters for 103 countries, 2003, preliminary, Peru rankings 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. 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. 56 Diagnostic evidence from Sierra Leone…

57. 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.

58. 58 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.

59. 59 Transparency within Government Agencies Prevents Purchase of Public Positions (Bolivia diagnostics) Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

60. 60 Peru: Sources of Undue Private Influence on the State Based on governance diagnostic surveys of public officials and enterprises Responses by:

61. 61 Unbundling Governance: Ratings by Firms (2003) P reliminary, 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. 62 Control of Cronyism: Differences across industrialized countries (OECD) 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. 63 Capture, Political Influence and Cronyism: 4 countries P reliminary, 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

64. 64 Political Influence by Powerful Firms: % of Firms Report Undue Influence of Political Financing and Politically Connected firms Source: EOS, 2003. % Firms Reporting Poor Rating

65. 65 Income vs. Campaign Finance Transparency – All States in USA Source: Center For Public Integrity: www.stateprojects.org (Nationwide Numbers) and US Census, 2000.

66. 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

67. 67 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. 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 Finance 7.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

69. 69 Identifying Institutional Vulnerabilities and Economic Fragility: the “Governance Deficit” Source: KKZ 2000/01 Governance Indicators, and Kaufmann and Kraay, “Growth without Governance”. High Low

70. 70 Per capita Income (log, PPP) Control of Corruption Sources: KK 2002 and Heston-Summers (2000) Income per capita vs. Control of Corruption High Low r =.79

71. 71 References and Links to full papers and further materials Governance Matters III: http://www.worldbank.org/wbi/governance/pubs/govmatters 3.html Governance Matters: http://www.worldbank.org/wbi/governance/pubs/govmatters. html Aggregating Gov Indicators: http://www.worldbank.org/wbi/governance/pubs/aggindicato rs.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/

72. 72 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 from collaboration with many Bank staff and outside experts. www.worldbank.org/wbi/governanc e