by D. Kaufmann A. Kraay, and M. Mastruzzi (2005) • Draft, May 9, 2005 • also available in Chinese

This paper presents the latest update of our estimates of six dimensions of governance covering 209 countries and territories for five time periods: 1996, 1998, 2000, 2002 and 2004. These indicators are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 different organizations. We assign these individual measures of governance to categories capturing key dimensions of governance, and use an unobserved component model to construct six aggregate governance indicators in each of the four periods. We present the point estimates of the dimensions of governance as well as the margins of error for each country for the four periods. These margins of error are not unique to perceptions-based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. In fact, we provide examples of how individual objective measures provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure.

We also analyze in some detail changes over time in our estimates of governance; provide a framework for assessing the statistical significance of changes in governance; and suggest a simple rule of thumb for identifying statistically significant changes in country governance over time. The ability to identify significant changes in governance over time is much higher for our aggregate indicators than for any individual indicator. While we find that the quality of governance in a number of countries has changed significantly (in both directions), we also provide evidence suggesting that there are no trends, for better or worse, in global averages of governance. Finally, we interpret the strong observed correlation between income and governance, and argue against recent efforts to apply a discount to governance performance in low income countries.

We have also prepared a brief synthesis paper and a separate file for the Appendices, which can both be downloaded from this page. The data, as well as a web-based graphical interface, are available at Governance Indicators: 1996-2004.

Note: The updated indicators for 1996–2004, available in May 2005, supersede the previously posted indicators from 1996 to 2002.

Access previous papers on Governance Indicators: Measuring Governance Using Cross-Country Perceptions Data (2005) Governance Matters (1999), Aggregating Governance Indicators (1999), Growth Without Governance (2002), Governance Matters III (2003), Governance Matters IV (Ukrainian), Keynote Synthesis (Russian), and Synthesis Paper (Ukrainian).

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