Why measuring governance matters
| Author | Camilla Andersen |
| Position | IMF External Relations Department |
| Pages | 217-231 |
Page 217
There is no denying that governance is a hot topic. Increasingly, donors and investors now base their decisions on which countries to give aid to and invest in on perceptions of governance. But is the emphasis on governance warranted? Is there a clearly proven link between governance and growth? And can governance be measured in any meaningful way? Aart Kraay, one of the pioneers of the World Bank's governance database, answered these and other questions at a recent IMF Institute seminar.
Page 230
Development is all about governance these days.When the Group of Eight (G8) countries announced their decision to double aid to Africa on July 8, a whole section in their communiqué was devoted to "promoting good and responsive governance." And while attaching fewer strings to aid is the new mantra of the development community, governance is one area where recipient countries can expect to face much greater scrutiny. But what exactly is governance, and how is it measured? Aart Kraay, one of the pioneers of the World Bank's governance indicators database- viewed as the state of the art within the development community-gave a tour d'horizon of governance at a June 16 seminar arranged by the IMF Institute.
The World Bank's database includes six dimensions of governance (see box, next page), ranging from "voice and accountability" to "control of corruption."
The data cover 209 countries over an eightyear period (1996-2004) and are derived from 37 separate data sources that include cross-country surveys of firms, commercial risk-rating agencies, think tanks, government agencies, and international organizations.
Almost all of this material is perception based.Why? Kraay explained that it makes sense to use subjective data (for instance, asking firms if they think government interferes with investment decisions) as opposed to objective data (for instance, counting the number of police patrolling the streets). Perceptions are what really matter when it comes to governance, because de jure rules often are not followed, or are abused. A country can have proportional representation, but if elections are routinely rigged, the election system matters very little. For these reasons, governance indicators that rely on subjective data are actually more informative about certain dimensions of...
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