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Aggregating Governance Indicators

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by D. Kaufmann A. Kraay, and P. Zoido-Lobatón (1999)

In recent years, the growing interest of academics and policymakers in governance has been reflected in the proliferation cross-country indices measuring various aspects of governance. This paper explains how a simple variant of an unobserved components model can be used to combine the information from these different sources into aggregate governance indicators. The main advantage of this method is that it allows us to quantify the precision of the both individual sources of governance data as well as the aggregate governance indicators. The paper illustrates the methodology by constructing aggregate indicators of bureaucratic quality, rule of law, and graft for a large sample of 160 countries. Although these aggregate governance indicators are more informative about the level of governance than any individual indicator, the standard errors associated with estimates of governance are still large relative to the units in which governance is measured.


Note: The updated indicators for 1996–2002, available in May 2003, supersede the previously posted indicators for 1998 and 2000


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