World Bank governance experts Daniel Kaufmann and Aart Kraay presented findings from their latest research, "Governance Matters IV: Governance Indicators for 1996-2004" at a CGD event on May 18. The study, written with another economist, Massimo Mastruzzi, provides updated information on six key dimensions of governance for 209 countries in 2004. This fourth version of the research draws from the most comprehensive set of governance indicators yet developed.The indicators included rule of law, government effectiveness, voice and accountability, control of corruption, regulatory quality and political stability. The Millennium Challenge Corporation includes all of them, except political stability, among the 16 indicators that help determine country MCA eligibility.Their work is impressive, not only by its magnitude, but by the breath and depth of the questions they asked and their approach to issues. They did not shy away from subjective data, including the value of perception in policy analysis.In the end, they concluded that no specific governance trend, either improving or worsening, has emerged over the last eight years. This came as a surprise to me, considering the amount of resources the international development community has invested in governance.To what extent does better governance help increase incomes? To what extent do higher incomes help enable improved governance?Have international efforts to improve governance had any effect? More broadly, do we know what steps, if any, by the international community actually improve governance?Kaufmann and Kraay show a strong relationship between governance and income. But which way does the causality run? They argue that improved governance leads to higher income.The MCA is consistent with this philosophy, believing that stronger governance is an important ingredient for growth.Jeffrey Sachs at Columbia University argues that countries have weak governance because they are poor, and that higher incomes lead to better governance.Steve Radelet at CGD argues that both are correct, and that there is a positive reinforcing cycle between improved governance and higher income. He reflects on the implications of governance indicators on MCA country selection in "New Global Governance Indicators and the Possible Impact on MCA Qualification"What do you think?
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