Measuring Monitoring Governance in Developing Countries Stephen

Measuring & Monitoring Governance in Developing Countries Stephen Knack The World Bank 2 nd International Roundtable Marrakesh, Feb. 2004

Governance: World Bank definition “Good Governance is epitomized by predictable, open and enlightened policy making (that is, transparent processes); a bureaucracy imbued with a professional ethos; an executive arm of government accountable for its actions; and a strong civil society participating in public affairs; and all behaving under the rule of law. ”

Governance and the MDGs Governance matters for: • Poverty reduction (via investment & growth) • Education & health outcomes (via higher incomes and quality of public service delivery)

Which governance indicator is “best” depends on the purpose n n Performance v. process Comparison at point in time across countries (e. g. for aid allocation) Measuring progress over time within individual countries (PRSP) Measuring progress over time for groups of countries (Global monitoring)

Measures used in early research Freedom House • Civil liberties • Political freedoms Political violence frequencies • Coups, attempted coups • Assassinations, civil wars • Riots, strikes

Political risk ratings • International Country Risk Guide • Business International • Business Environ. Risk Intelligence

ICRG: International Country Risk Guide n n n n Corruption in government Quality of bureaucracy Law & order tradition (rule of law) Risk of government repudiation of contracts Risk of expropriation Democratic accountability Ethnic tensions

Aggregating Governance Indicators TI: Corruption Perceptions Index WBI (Kaufmann/Kraay): n Voice and accountability n Political stability n Government effectiveness n Regulatory quality n Rule of Law n Control of corruption

CPIA: Country Policy & Institutional Assessment n n n Property Rights & Rule-based governance Quality of budgetary & financial management Efficiency of revenue mobilization Quality of public administration Transparency, accountability & corruption in the public sector

Broad indicators of quality of governance n n n Demonstrate importance of governance for economic outcomes Help in identifying political & social factors underlying governance problems Indicate countries for which governance may be most severe obstacle to growth, effective service delivery

Need for more specific governance indicators At country level: n Identify areas where reforms needed n Monitor progress over time Research: n Identify which institutional arrangements are most important n what can be done

Importance of transparency and replicability of measurement Country “ownership” often requires more transparently constructed and replicable indicators Ownership is also influenced by specificity--governments may resist indicators that seem accusatory & do not suggest particular solutions

Surveys of businesses, public officials, households n n n administrative corruption vs. state capture (BEEPS/WBES) corruption, employee morale, credibility of rules and policies, resource predictability across agencies (WB public officials surveys) quality of service delivery (Bangalore Report Cards, Barometer surveys)

Assessment of budgeting systems in HIPCs n n n budget formulation: coverage, inclusion of donor funds, classification system, multiyear projections budget execution: internal control, tracking reliability budget reporting: regularity of reports, delays in final audited accounts

“Doing Business” n n n Number of procedures, fees, time required to start a new business Number of procedures, time required to collect on a bad debt or to evict a non-paying tenant Creditor rights Employment regulation Bankruptcy rules

Other “objective” performance measures n n n Tax revenue as share of GDP Trade tax revenue as share of all revenue Budgetary volatility Revenue source volatility Survey responses: bribes/revenues, frequency of power outages, teacher absences, doctor absences

Cross-National Data on Government Employment and Wages n n Employment in civil service, health, education, and police in central and sub-national government Central government wage bill, as share of government spending and GDP Average central government wage, relative to per capita income and wages in manufacturing, financial services and private sector Vertical compression ratio

Corruption & Civil service pay

Database on Political Institutions (DPI) • n n Coverage: 1975 -present for 177 countries Content: 113 variables on elections & electoral rules, party composition of opposition & governing coalitions, indexes of political stability & checks & balances Applications: receptivity to economic reform, political roots of corruption, sources of the rule of law, management of ethnic divisions