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The Data Revolution: Measuring Governance and Corruption

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April 8, 2004—Until not long ago, measuring corruption and governance was regarded as nearly impossible. It was not considered possible to estimate the extent of corrupt annual transactions worldwide.

But there has been an "explosion" in measurement techniques in recent years, stemming the tide of skepticism, says World Bank Institute Governance Director Daniel Kaufmann. These new approaches focus on constructing indicators based on surveys of experts as well as measuring, in surveys of enterprises and users of public services, the extent of misgovernance and bribery.

The increasing availability of surveys and polls by many institutions, containing data on different dimensions of governance, has permitted the construction of a worldwide governance databank. Utilizing scores of different sources and variables, as well as a novel aggregation technique, this databank now covers about 200 countries worldwide, and contains key aggregate indicators in areas such as rule of law, corruption, regulatory quality, government effectiveness, voice and accountability, and political instability.

This new governance data, coupled with the information technology revolution, and the will by many reformists in governments, civil society and international organizations to generate data and transparently disseminate it, has resulted in such widespread use of governance data that the notion of 'Data Power' has been coined.

Why is data regarded as so important in this field? Kaufmann points to five key dimensions:

  • It debunks long held popular notions and outright myths. For example the myth that a country needs first to be rich to have good governance and low corruption; or that anti-corruption commissions and legal drafting are the solutions.
  • It permits management and decision-making based on performance-based measurement - such as identifying and monitoring the most vulnerable determinants and institutions of governance in a country.
  • It empowers reformists, civil society and the media with a powerful tool to affect change.
  • Data demystifies, 'de-emotionalizes' and 'de-sensationalizes' the field of governance, corruption and institutional change, enabling more rigor and level headed dialogue.
  • It permits the quantitative research of the lessons provided by the evidence, helping the field move forward.

Data from enterprise surveys has also helped in codifying the extent to which governance and corruption matters. For instance, in recent research, it was found that on average corruption is one of the top (and often 'the top') constraint to a firm in emerging markets. It was also found that the business sector can grow on average 3 percent a year faster where corruption is lower, and property rights and the rule of law are improved.

Further, controlling corruption has been found to be of particular benefit to smaller and medium-sized enterprises, which bear a disproportionate share of the 'bribery tax' burden - just as the evidence also shows that lower income households also tend to pay a higher share of bribes in incomes than their wealthier counterparts. Other researchers have found that corruption constitutes a very substantial "tax" on investment - equivalent to a 20 percent tax to foreign investors.

The research at the Bank, based on enterprise surveys, has also codified the extent to which some powerful corporations exert undue influence on state institutions, its laws, regulations and policies, often through illicit means. The data indicates that the prevalence of this phenomena of 'state capture' varies significantly across countries. Where it is a major constraint, while the firms that are 'purchasing' laws and regulations benefit privately, the private sector as a whole suffers by growing much more slowly.

In sum, the data shows that good governance and addressing corruption ought to be central elements of an improved investment climate and business environment. But because of the particular interface between the private and public sectors, the corporate sector also has a key responsibility in an improved investment climate.

The data is also important for evaluating the effectiveness of donor efforts in this field. For instance, a recently concluded Global Poll commissioned by the World Bank indicated that, while the Bank had made strides on many development assistance areas, itneeded to do even more on anti-corruption. Analysis of the responses from emerging economies suggest, in fact, that where corruption is higher, the likelihood of development loans being wasted is also much higher. Similarly, data from survey responses on questions about corruption - including many in government, civil society and the private sector in developing countries - say that without a tough commitment by the country to control corruption, donor funds should not flow freely.

The overall sobering findings on governance and anticorruption efforts apply more generally: the data indicates that on average there has not been a significant improvement in recent years. There have been success cases, but there are also many countries that have stagnated or deteriorated.

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