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Governance Matters VI:Aggregate and Individual Governance Indicators1996–2006
Daniel KaufmannAart KraayMassimo MastruzziThe World Bank
This paper reports on the latest update of the Worldwide GovernanceIndicators (WGI) research project, covering 212 countries and territories and measuringsix dimensions of governance between 1996 and 2006: Voice and Accountability,Political Stability and Absence of Violence, Government Effectiveness, RegulatoryQuality, Rule of Law, and Control of Corruption. This latest set of aggregate indicators,are based on hundreds of specific and disaggregated individual variables measuringvarious dimensions of governance, taken from 33 data sources provided by 30 differentorganizations. The data reflect the views on governance of public sector, private sectorand NGO experts, as well as thousands of citizen and firm survey respondentsworldwide. We also explicitly report the margins of error accompanying each countryestimate. These reflect the inherent difficulties in measuring governance using any kindof data. We find that even after taking margins of error into account, the WGI permitmeaningful cross-country comparisons as well as monitoring progress over time. In lessthan a decade, a substantial number of countries exhibit statistically significantimprovements in at least one dimension of governance, while other countries exhibitdeterioration in some dimensions. The decade-long aggregate indicators, together withthe disaggregated individual indicators, are available on a newly-redesigned website atwww.govindicators.org.
World Bank Policy Research Working Paper 4280, July 2007
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage theexchange of ideas about development issues. An objective of the series is to get the findings out quickly,even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirelythose of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors,or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org.
1818 H Street NW, Washington, DC 20433, USA, dkaufmann@worldbank.org, akraay@worldbank.org,mmastruzzi@worldbank.org. The views expressed here are the authors' and do not necessarily reflectthose of the World Bank, its Executive Directors, or the countries they represent. The WorldwideGovernance Indicators are not used by the World Bank for resource allocation or for any other officialpurpose. We would like to B. Parks, M. Camerer, M. Carballo, R. Fullenbaum, B. Muskovitz, F. Marzo, C.Walker, S. Sarkis, J. Langston, L. Abruzzese, P. Wongwan, S. Hatipoglu, D. Cingranelli, D. Richards, J.Zveglich, M. Lagos, A. Lopes-Claros, R. Coutinho, S. Mannan, and D. Cieslikowsky for providing data andanswering our numerous questions, and Luis Servén for helpful comments. The support and collaboration ofthe World Economic Forum, the U.S. State Department, and the Netherlands Government is appreciated.
1. Introduction
 This paper presents the latest update of the Worldwide Governance Indicators(WGI) research project.
The indicators measure six dimensions of governance: voiceand accountability, political stability and absence of violence, government effectiveness,regulatory quality, rule of law, and control of corruption. They cover 212 countries andterritories for 1996, 1998, 2000, and annually for 2002-2006.
The indicators are basedon several hundred individual variables measuring perceptions of governance, drawnfrom 33 separate data sources constructed by 30 different organizations. We assignthese individual measures of governance to categories capturing these six dimensions ofgovernance, and use an unobserved components model to construct six aggregategovernance indicators in each period.As in the past, we complement our estimates of governance for each countrywith margins of error that indicate the unavoidable uncertainty associated withmeasuring governance across countries. These margins of error have declined overtime with the addition of new data sources to our aggregate indicators, and aresubstantially smaller than for any of the individual data sources. We continue toencourage users of the governance indicators to take these margins of error intoaccount when making comparisons of governance across countries, and within countriesover time. In particular, a useful rule of thumb is that when confidence intervals forgovernance based on our reported margins of error overlap in comparisons of twocountries, or a single country over time, this suggests that the data do not revealstatistically (or for that matter practically) significant differences.The margins of error we report are not unique to our aggregate indicators, norare they unique to perceptions-based measures of governance on which we rely.Measurement error is pervasive among all indicators of governance and institutionalquality, including individual indicators as well as ‘objective’ or fact-based ones -- if these
This paper is the sixth in a series of estimates of governance across countries. Documentationof previous rounds can be found in Kaufmann, Kraay, and Zoido-Lobatón (1999a,b,2002), andKaufmann, Kraay, and Mastruzzi (2004, 2005, 2006a,b).
A few of the entities covered by our indicators are not fully independent states (e.g. Puerto Rico,Hong Kong, West Bank/Gaza, Martinique, and French Guyana). A handful of very smallindependent principalities (e.g. Monaco, San Marino, and Andorra) are also included. For stylisticconvenience all 212 entities are referred to in this paper as “countries”.
2are available at all. Unfortunately, typically little if any effort is devoted to estimating, letalone reporting, the substantial margins of error in any other governance and/orinvestment climate indicators – objective or subjective, aggregate or individual. A keyadvantage of our measures of governance is that we are explicit about theaccompanying margins of error, whereas in most other cases they are often left implicitor ignored altogether.Despite these margins of error, our aggregate indicators are sufficientlyinformative that many cross-country comparisons of governance can result in statistically(and practically) significant differences. In comparing governance levels acrosscountries, for example, we document that over 60 percent of all cross-country pairwisecomparisons using the WGI for 2006 result in statistically significant differences at the 90percent significance level, and nearly 75 percent of comparisons are significant at theless stringent 75 percent significance level. In assessing trends over time, we find thatnearly 30 percent of countries experience significant changes over the period 1998-2006in at least one of the six indicators (roughly evenly divided between significantimprovements and deteriorations). This highlights the fact that governance can anddoes change even over relatively short periods such as a decade. This should bothprovide encouragement to reformers seeking to improve governance, as well as warnagainst complacency in other cases as sharp deteriorations in governance are possible.The aggregate indicators that we report are a useful way of summarizing the verylarge amount of information embodied in all of our underlying data sources. The specificaggregation procedure we use also allows us to calculate explicit margins of error tocapture the inherent uncertainties in measuring governance. At the same time, werecognize that for many purposes the information in each of our individual underlyingdata sources can be of interest to users. In many cases these provide highly specificand disaggregated information about particular dimensions of governance that are alsoof interest for monitoring and diagnostic purposes. For this reason we began last year,and continue this year, the practice of reporting on our website country scores on all ofthe individual indicators underlying our aggregate governance indicators. We reportthese disaggregated underlying indicators for the entire time period covered by theaggregate indicators, from 1996 to 2006.

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