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1
Governance and Corruption Worldwide:
Empirical Evidence and Lessons for PolicyDaniel Kaufmann, The World Bank Institutewww.worldbank.org/wbi/governance
Global Issues Seminar Series,
March 1st, 2006
"If you cannot measure it, you cannot improve it." -- Lord Kelvin
2
Challenging Convention – key tenets
1. Governance and Corruption are Unmeasurable
2. Some evidence: Governance has improved globally?
3. Good Governance: outcome of development and
growth? – & emerging economies are corrupt…?
4. The trouble is with Public Sector & Officials in LDCs
5. Cultural & Historical Determinism of Corruption
6. Fighting corruption by ‘Fighting Corruption’
(Laws, Codes, Campaigns, Agencies & More
Regulations)
3
Tenet # 7: Challenging the previous ‘popular notions’
1. Data Matters -- on Governance & Institutions: while ‘sensitive’, & margins of error (not uniquely) – data can be gathered, analyzed, and used judiciously
2. Expanding Beyond the Washington Consensus-- Adding to the Macro and the Structural’/Sectoral: Institutions, Governance and Corruption Matters
3. On Average: stagnation on Governance, and level is low -- Has it become a binding constraint nowadays?
4. Significant variance: some countries show that it is feasible to improve governance in the short term
5. Interventions that have not worked – vs. what may work better in the future? – Transparency, Meritocracy and Deregulation matters – within collective action with private sector, legislative and judiciary
5
Six Dimensions of Governance
• The process by which those in authority are selected and replaced – VOICE AND ACCOUNTABILITY – POLITICAL STABILITY & ABSENCE OF VIOLENCE/TERRORISM
• The capacity of government to formulate and implement policies– GOVERNMENT EFFECTIVENESS– REGULATORY QUALITY
• The respect of citizens and state for institutions that govern interactions among them – RULE OF LAW – CONTROL OF CORRUPTION
Governance as the set of traditions and institutions by which authority in a country is exercised -- specifically:
11
Voice & Accountability, 2004 (Selected Countries)
-2.5
0
2.5M
YA
NM
AR
KO
RE
A,
NO
RT
H
ER
ITR
EA
TU
RK
ME
NIS
TA
N
SU
DA
N
UZ
BE
KIS
TA
N
SY
RIA
SO
MA
LIA
BE
LA
RU
S
ZIM
BA
BW
E
PA
KIS
TA
N
EG
YP
T
RU
SS
IA
VE
NE
ZU
EL
A
MA
DA
GA
SC
AR
IND
IA
GH
AN
A
AR
GE
NT
INA
KO
RE
A,
SO
UT
H
SO
UT
H A
FR
ICA
GR
EE
CE
MA
UR
ITIU
S
UR
UG
UA
Y
CH
ILE
ES
TO
NIA
PO
LA
ND
HU
NG
AR
Y
GE
RM
AN
Y
NE
TH
ER
LA
ND
S
FIN
LA
ND
NO
RW
AY
DE
NM
AR
KPoor Governance
Governance Level
Margins of Error
Good Governance
Source for data: : 'Governance Matters IV: Governance Indicators for 1996-2004’, D. Kaufmann, A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/); 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.
12
Control of Corruption: one Aggregate Indicator (selected countries from 204 worldwide, for illustration, based on 2004 research
data)
-2.5
0
2.5E
QU
AT
OR
IAL
GU
INE
A
KO
RE
A, N
OR
TH
TU
RK
ME
NIS
TA
N
UZ
BE
KIS
TA
N
TA
JIK
IST
AN
BA
NG
LA
DE
SH
VE
NE
ZU
EL
A
ZA
MB
IA
RU
SS
IA
KO
RE
A, S
OU
TH
MA
UR
ITIU
S
SO
UT
H A
FR
ICA
GR
EE
CE
ITA
LY
BO
TS
WA
NA
SL
OV
EN
IA
CH
ILE
FR
AN
CE
SP
AIN
UN
ITE
D K
ING
DO
M
NE
TH
ER
LA
ND
S
NO
RW
AY
NE
W Z
EA
LA
ND
FIN
LA
NDPoor
Governance
Governance Level
Margins of ErrorGood
Governance
Source for data: : 'Governance Matters IV: Governance Indicators for 1996-2004’, D. Kaufmann, A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/); 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.
13
Government Effectiveness, 2004: World Map
Source for data: : 'Governance Matters IV: Governance Indicators for 1996-2004’, D. Kaufmann, A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/); 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.
16
Judiciary Independence (EOS survey results 1998-2004)
1
4
7
1998 1999 2000 2001 2002 2003 2004
Inde
pend
enci
a de
la J
udic
atur
a
OECD
East Asian NICs
Latin America
NON OECD
High Independence
No Independence
18
Are all Countries Stagnating in Governance?
• The world on average has not improved
• But large or small variation across countries?
• New method: for each country, we can identify
whether there are significant changes over time
• It is found that changes can take place in the
short-term: in 6-to-8 years, some deteriorations
as well as some significant improvements as well
19
Changes in Rule of Law, 1996-2004
-2
0
2Z
IMB
AB
WE
IVO
RY
CO
AS
T
SW
AZ
ILA
ND
VE
NE
ZU
EL
A
MO
LD
OV
A
C. A
FR
. R
EP
.
ET
HIO
PIA
CU
BA
EG
YP
T
GE
RM
AN
Y
U.K
.
NIG
ER
IA
UG
AN
DA
JO
RD
AN
RO
MA
NIA
SL
OV
AK
RE
P.
SE
RB
IA
SL
OV
EN
IA
MO
ZA
MB
IQU
E
MA
LT
A
ES
TO
NIA
CR
OA
TIA
LIT
HU
AN
IA
Changes were calculated on the basis of the differences in country estimates from 1996 and 2004. Classification for major deteriorations and improvements were based on 75% confidence interval. Source for data: http://www.worldbank.org/wbi/governance/govdata/.
Major Deterioration
(selected countries)
Major Improvement
(selected countries)
Insignificant Change
20
Governance Indicators: Zimbabwe, 1996/2004
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.
21
Croatia 2004 vs.1996
23
Governance Indicators: Chile, 1996/2004
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.
24
Governance Matters: The 300% ‘Dividend’
1. Large Development Dividend of Good Governance: a one-standard-deviation improvement in governance raise incomes per capita in a country by about 300% in long-run
2. But is such a decline in corruption unrealistically large?: NO -- One S.D. is the difference from: Eq. Guinea Iran or Uganda Mauritius Portugal Finland or New Zealand
3. The impact is from governance to incomes, and not viceversa -- higher incomes alone will not do
4. Urgency of interventions to improve governance
25
-1
0
1
Low Voice Middle Voice High Voice
Voice and Accountability
Con
trol
of C
orru
ptio
n
Good
Voice and Accountability vs. Control of Corruption
Source for Control of Corruption: : 'Governance Matters IV: Governance Indicators for 1996-2004’, D. Kaufmann, A. Kraay and M. Mastruzzi, (http://www.worldbank.org/wbi/governance/govdata/).
26
The ‘Mezzo’ Level of Governance Measurement
• Based on cross-country surveys, mainly of enterprises – (such as the EOS of WEF, BEEPS/WBES of WB, etc.)
• Thousands of firms interviewed on a range of issues; focus on governance, specialized questions
• More detailed unbundling of governance and corruption phenomena than aggregate indicators
• Relatively broad country coverage, but less than aggregate governance indicators
• Measuring what is taking place De Facto matters: it uncovers stark realities masked in De Jure indicators
• Addresses empirically: ‘It takes two to “tango”’
27
Some Key Constraints to Business, by Region, Responses from the Firm in EOS 2005
0
10
20
30
40
50
60
70
OECD East Asia NICs East Asiadeveloping
Middle East &North Africa
Latin America
Foreign Currency Bureaucracy Corruption
Tax Regulations Inflation
% firms reporting constraint among top 3:
Source: EOS 2005. The question posed to the firm was: Select among the above 14 constraints the five most problematic factors for doing business in your country.
28
Figure 1: Better Governance is Associated with Higher Country’s Competitiveness
ZWE
VNM
VEN
URY
USA
GBRARE
UKR
UGA
TUR
TUN
TTO
THA
TZA
TJ K
TWNCHE
SWE
LKA
ESP
ZAF
SVN
SVK
SGP
YUG
RUS
ROM
QAT P RT
P OL
P HL
P ER
P RY
P AN
P AK
NOR
NGA
NIC
NZLNLD
NAM
MOZ
MAR
MNG
MDA
MEXMUS
MLT
MLI
MYS
MWI MDG
MKD
LUX
LTULVA
KGZ
KWT
KOR
KEN
KAZ
J OR
J P N
J AM
ITA
ISR IRL
IDN
IND
ISL
HUN
HKG
HND
GUY
GTM
GRC
GHA
DEU
GEOGMB
FRA
FIN
ETH
SLVEGY
ECUTMP
DOM
DNK
CZECYP
HRV CRICOL
CHN
CHL
TCD
CAN
CMRKHM
BGRBRA
BWA
BIHBOL
BEN
BEL
BGD
BHR
AZE
AUT
AUS
ARGDZA
ALB
2
4
6
-2 -1 0 1 2 3Control of Corruption
Glo
bal
Co
mp
etit
iven
ess
Ind
ex
Low
Low High
High
r = 0.90
Sources: GCI is from GCR2005/6 by WEF, Control of Corruption from Kaufmann, Kraay and Mastruzzi, ‘Governance Matters IV: Governance Indicators for 1996-2004’.
29
2
3
4
5
6
7
Yaounde Douala Bogota Medellin Vilnius Kaunas Madrid Barcelona
Fre
quen
cy o
f B
ribe
ryVariance in Governance across cities within same country:
Bribery in Procurement as an illustration
Source: author calculations based on EOS firm survey, WEF2003, 271 cities. Question: In your industry, how commonly firms make undocumented extra payments or bribes connected with awarding of public contracts? (7: very common…. 1: never occur)
High Bribery
Low
SpainColombia LithuaniaCameroon
30
Local Services:Local Services:Access to Water, City Governance and GlobalizationAccess to Water, City Governance and Globalization
(Non OECD Sample)(Non OECD Sample)
20%
100%
Acc
ess
to W
ater
(%
)
Poor Governance Good Governance
Control of Corruption
Bribery in Utility State Capture Control of Corruption
Bribery in Utility State Capture
Local City
Global City
Sources: EOS 2003, UN 1998, KK 2002 & KLM 2004
31
The ‘Micro’ Level – In-depth in-country diagnostics for action programs
Key Features of Governance Diagnostic Tools
• Multi-pronged surveys of: households, firms and public officials [‘triangulation’]
• Experiential questions (vs. ‘opinions’/generic)
• Local Institution Implements, w/WB Collaboration
• Recognizing Multidimensionality of Governance
• Focus on Service Delivery
• Input for Action and Change: Action Programs
32
Misgoverned vs. well Governed Agencies in-Country (as ranked by public officials, 2000 diagnostic)
0 10 20 30 40 50 60 70 80
Professional Oranizations
The Church
Army
NGOs
Ombudsman
The President of the Republic
Petroecuador
Police
Customs
Transit Council
Congress
The Transit Commission of Guayas
% reporting that the agency is very corrupt
33
Citizen Voice Helps Control Bribery Citizen Voice Helps Control Bribery (Bolivia Diagnostics)(Bolivia Diagnostics)
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
ber
y
Simple Average Association Control Causal Link Margin of Error
35
Policy Implications 1. Measuring governance is important 2. Measuring Governance is feasible 3. Governance Matters: large “development dividend”• strong causal impact of governance on incomes, but
little evidence that higher incomes raise governance4. The world on average is ‘stagnant’ – but some
countries have improved significantly5. Need to refocus efforts to improve governance • frank questioning of what doesn’t work: -- Anti-Corruption campaigns-- Drafting more laws, codes, and Conventions-- Create additional ethics and A-C agencies-- ‘Blame’ History, Culture or Legal Origins-- ‘Blame’ Reform, Privatization, Globalization
36
What Appears to Work…
1. ‘Data Power’ + Transparency Strategy & Reforms
2. Voice and Accountability – incl. Freedom of the Press
3. Subnational Level Reforms and Focus (cities, villages..)
4. Deregulation/ Integrate to world economy & markets
5. Focus on Incentives and on Prevention
6. Meritocratic Civil Service & Oversight Institutions
7. Budgetary/Public Expenditure Reforms
8. Political Finance Reform
9. Role of Corporate/Banking Sectors & Multinationals
10. Judicial Reform
39
Governance Has Improved in Some Groups:e.g. “Pull Effect” of EU Accession
-1.5
-1
-0.5
0
0.5
1
1996 1998 2000 2002 2004
Rul
e of
Law
EUAccessed
ex-SovietUnion (noaccess)
Source for data: http://www.worldbank.org/wbi/governance/govdata/. EU EE Accessed Countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia.
High
Low
40
Bibliographical References1. Kaufmann, D., A. Kraay, and M. Mastruzzi. 2005. "Governance Matters IV:
Governance Indicators for 1996-2004." http://www.worldbank.org/wbi/governance/pdf/Synthesis_GovMatters_IV.pdf (synthesis), and, http://www.worldbank.org/wbi/governance/pdf/Synthesis_GovMatters_IV.pdf (full paper)
2. Kaufmann, D. and A. Kraay. 2003. "Governance and Growth: Causality Which Way?" http://worldbank.org/wbi/governance/pdf/growthgov_synth.pdf.
3. Kaufmann, D. 2003. "Rethinking Governance: Empirical Lessons Challenge Orthodoxy." http://worldbank.org/wbi/governance/pdf/rethink_gov_stanford.pdf.
4. Kaufmann, D. 2004. "Corruption, Governance and Security: Challenges for the Rich Countries and the World."
http://worldbank.org/wbi/governance/pdf/Kaufmann_GCR_101904_B.pdf.5. Bellver, A. and D. Kaufmann (2005). "Transparenting Transparency: Initial
Empirics and Policy Applications". http://worldbank.org/wbi/governance/pubs/TransparencyIMF.html
Governance Indicators User Interface: http://www.worldbank.org/wbi/governance/govdata/.