Good Governance and its benefits on economic …

1 good Governance and its benefits on economic DevelopmentAn Overview of Current TrendsWorld Bank InstituteOutlineOutline What is Governance ? Why does Governance matter? Costs of poor Governance benefits of good Governance Identifying, measuring and addressing the problems: Global and local approachesWhat is Governance ?What is Governance ? Governance is the process and Governance is the process and institutions through which institutions through which decisions are made and authority decisions are made and authority in a country is a country is exercised. Governance rests on the twin Governance rests on the twin values of inclusiveness and values of inclusiveness and can be internal or external Accountability can be internal or external Inclusiveness implies equal Inclusiveness implies equal participation and equal treatmentparticipation and equal treatmentInclusiveness Inclusiveness ----In MENA, female In MENA, female representation in parliaments is lowrepresentation in parliaments is low0%0%1%2%2%3%4%5%6%6%6%11%12%12%15%Kuw aitUAEY emenLebanonEgyptJordanIranMENA13 AlgeriaMoroccoBahrainDjiboutiTunisiaSyri aWorld To better measure Governance .

2 It helps to To better measure Governance , it helps to further break it in three categories: further break it in three categories: , accountability and replacement of authorities Voice and accountability Stability and lack of of institutions, regulations, resource management Regulatory framework Government for institutions, laws and interactions among players in civil society, business, and politics Control of corruption Rule of lawComponents of good Governancevoice and accountabilitystability and lack of violenceSelection and Monitoringregulatory frameworkgovernment effectivenessEfficiencycontrol of corruptionrule of lawRespectAggregate indicators: Stimulating the Aggregate indicators.

3 Stimulating the debate about governancedebate about Governance Easily understood, widely accepted criteria (rule of law, government effectiveness, etc) Draw on work of expert institutions tracking specific fields, political risk, investor attitudes Aggregation helps improve reliability (wider sample of opinions) Encourage countries to focus resources on problem areas, draws public attention Encourage countries to learn from each other More valuable when available over timeSources of Governance DataSources of Governance Data Subjective data on Governance from 25 different sources constructed by 18 different organizations Data sources include cross-country surveys of firms, commercial risk-rating agencies, think-tanks, government agencies, international organizations, etc.

4 Over 200 proxies for various dimensions of Governance Organize these measures into six clusterscorresponding to definition of Governance , for four periods: 1996, 1998, 2000, and 2002, covering up to 199 countriesSources of Governance DataSources of Governance Data Cross-Country Surveys of Firms:Global Competitiveness Survey, World Business Environment Survey, World Competitiveness Yearbook, BEEPS Cross-Country Surveys of Individuals:Gallup International, Latinobarometro, Afrobarometer Expert Assessments from Commercial Risk Rating Agencies:DRI, PRS, EIU, World Markets Online, Expert Assessments from NGOs, Think Tanks:Reporters Without Borders, Heritage Foundation, Freedom House, Amnesty International Expert Assessments from Governments, Multilaterals:World Bank CPIA, EBRD, State Dept.

5 Human Rights ReportInputs for Indicators 2002 Inputs for Indicators 2002 PublisherPublicationSourceCountry Coverage Wefa sDRI/McGraw-Hill Country Risk ReviewPoll117 developed and developing Business Env. Risk Intelligence BERIS urvey50/115 developed and developing Columbia UniversityColumbia U. State Failure Poll84 developed and developing World Bank Country Policy & Institution AssessmentPoll 136 developing Gallup InternationalVoice of the PeopleSurvey 47 developed and developing Business Env. Risk Intelligence BERIS urvey50/115 developed and developing EBRDT ransition ReportPoll27 transition economies Economist Intelligence UnitCountry IndicatorsPoll 115 developed and developing Freedom HouseFreedom in the WorldPoll192 developed and developing Freedom HouseNations in TransitPoll27 transition economies World economic Forum/CIDG lobal Competitiveness Survey80 developed and developing Heritage FoundationEconomic Freedom IndexPoll156 developed and developing Latino-barometroLBOS urvey17 developing Political Risk ServicesInternational Country Risk GuidePoll140 developed and developing Reporters

6 Without Borders Reporters sans frontieres(RSF)Survey138 developed and developing World Bank/EBRDBEEPSS urvey27 transition economies IMD, LausanneWorld Competitiveness Yearbook Survey 49 developed and developing Binghamton Univ. Human Rights Violations ResearchSurvey 140 developed and developingPrecision vs. Number of Sources,Precision vs. Number of Sources,KKZ Governance Estimates, 2000/01 KKZ Governance Estimates, 2000 of Sources Per CountryMargin of ErrorNote: See explanatory details in this slide s noteIngredients for Rule of Law IndicatorIngredients for Rule of Law IndicatorSurveys of FirmsBEEPSC ourts Honest?

7 Crime? Property rights protected?Global Competitiveness SurveyCrime, money laundering, judicial independence, protection of financial assetsWorld Competitiveness YearbookJustice fairly administered, personal security and private property protectedSurveys of IndividualsGallupTrust in legal systemRisk Rating AgenciesBERIC ontract enforcementDRIC osts of crime, enforceability of contractsEIUC osts of crime, enforceability of contracts, property rights protectionPRSLaw and orderWorld Markets ObserverJudicial independence, crimeThink TanksFreedom HouseRule of lawHeritage FoundationProperty rights, black market activityGovernmentsState Dept Human Rights ReportJudicial independenceType of QuestionsRule of Law: A Composite Governance IndicatorRegional Averages, 2000/01 - Point AsiaNICsE.

8 EuropeMENAC aribbeanE Asiadev' : Governance Research Indicators based from data in D. Kaufmann and A. Kraay, 'Growth without Governance ', Units in vertical axis are expressed in terms of standard deviations around zero. Country and regional average estimates are subject to margins of error (illustrated by thin line atop each column), implying caution in interpretation of the estimates and that no precise country rating is warranted. For access to the databank and detailed explanations: Note that New Zealand, Australia and Japan are listed under OECD. All other countries are listed according to their geographical Traffic Light World Map Traffic Light World MapControl of Corruption Control of Corruption 2000/012000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between75% and 90% ; Dark Green above 90% Traffic Light Map: Rule of Law, 2000/01 Traffic Light Map: Rule of Law, 2000/01 Source for data.

9 Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between75% and 90% ; Dark Green above 90%Control of Corruption Selected countries from 155 worldwide, for illustration, based on 1998 research data*-2-1012 TajikistanIraqMyanmarSudanUkraineIndones iaSyriaPakistanMexicoPhilippinesThailand Korea, SouthBotswanaCosta RicaHungaryBelgiumChileAustraliaSingapor eNew ZealandDenmarkSource: Governance Matters , 1999, PRWP 2196 by Kaufmann, Kraayand Zoido. of ErrorGood Corruption ControlChanges in Control of Corruption, 1997/98 Changes in Control of Corruption, 1997/98--2000/012000/01-4-3-2-101234 ZIMBABWEMALAYSIARUSSIAIVORY COASTKENYATHAILANDINDONESIAGERMANYROMANI APARAGUAYCAMEROONARMENIAGHANASPAINKOREA, SOUTHURUGUAYCOSTA RICABOTSWANAMOZAMBIQUEALBANIACHILEBULGAR IACROATIANAMIBIAR ankings were calculated on the basis of the differences in country estimates from 1998 and 2001 data, divided by the standard deviations of 2001.

10 Sources: KKZ98 / KKZ01 From Bottom 20(selected countries)From Top 20(selected countries)Major DeteriorationMajor ImprovementInsignificant ChangeIndicators as an incentive for change: Indicators as an incentive for change: the power of datathe power of data Overall, most powerful indicators are those that draw public attention to problems While laws and institutions are important, external accountability measures may have even bigger impact Difficult to avoid stronger role for civil society in any comprehensive strategy for addressing Governance issuesGovernance Improves Growth by Governance Improves Growth by Improving the Business EnvironmentImproving the Business EnvironmentThe economic development Dividend The economic development Dividend of good Public Governanceof good Public GovernanceInfant Mortality and Corruption0102030405060708090 WeakAverageGoodControl of Corruption xDevelopment Dividend02,0004,0006,0008,00010,00012.