Governance Matters

Abstract

Six new aggregate measures capturing various dimensions of governance provide new evidence of a strong causal relationship from better governance to better development outcomes.

In a cross-section of more than 150 countries, Kaufmann, Kraay, and Zoido-Lobaton provide new empirical evidence of a strong causal relationship from better governance to better development outcomes. They base their analysis on a new database containing more than 300 governance indicators compiled from a variety of sources. They provide a detailed description of each of these indicators and sources. Using an unobserved components methodology (described in the companion paper by Kaufmann, Kraay, and Zoido-Lobaton, Aggregating Governance Indicators, Policy Research Working Paper 2195), they then construct six aggregate indicators corresponding to six basic governance concepts: voice and accountability, political instability and violence, government effectiveness, regulatory burden, rule of law, and graft. As measured by these indicators, governance matters for development outcomes.

This paper - a joint product of Macroeconomics and Growth, Development Research Group; and Governance, Regulation, and Finance, World Bank Institute - is part of a larger effort in the Bank to study the causes and consequences of governance for development. The authors may be contacted at [e-mail], [e-mail], or [e-mail].

JEL Classification: E00,H00,O10,C1,C3,C42,C43,D8,HO,H4,K0,K2,K4