1

Misrule of Law in Numbers:

Worldwide Empirics means Heresy to Law and Economics?

Daniel Kaufmann, The World Bank Institute

www.worldbank.org/wbi/governance

www.govindicators.org

Preliminary Background Material for Presentation at the 2nd Workshop on Measuring Law & Institutions, to

be held in Paris, December 14-15th, 2007

Preliminary Draft, not for circulation

2

Challenging Convention on Rule of Law (RoL)from an Empirical Development Perspective

1. The WGI, and the disaggregated data: major Governance Databank, including Rule of Law

2. Little Change can take place in RoL in Short Term?

3. Rule of Law Matters for Economic Development?

4. De Facto Data Matters, and so do Margins of Error

5. The gap between De Jure vs. De Facto: Informality

6. Historical Legal Origins determines RoL today?

7. Capturing Capture

8. Some Implications for Research and Policy

4

Six Dimensions of Governance

• The process by which those in authority are selected and replaced – VOICE AND ACCOUNTABILITY – POLITICAL STABILITY & ABSENCE OF

VIOLENCE/TERRORISM• The capacity of government to formulate and

implement policies– GOVERNMENT EFFECTIVENESS– REGULATORY QUALITY

• The respect of citizens and state for institutions that govern interactions among them – RULE OF LAW – CONTROL OF CORRUPTION

Governance as the set of traditions and institutions by which authority in a country is exercised-- specifically:

5

Worldwide Governance Indicators Project• WGI: Six aggregate governance indicators

covering 212 countries over past decade• WGI is annually released, based on 33 data

sources, capturing views of thousands of informed stakeholders

• Used by analysts, officials, civil society, and researchers to monitor governance and study its causes and consequences

• Transparent availability of the aggregate and disaggregate indicators (and margins of error, methodology, answer to critics, etc.) in the web, at www.govindicators.org

6

Sources 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 Voice of the People, Latinobarometro, Afrobarometer

• Expert Assessments from Commercial Risk Rating Agencies: DRI, PRS, EIU, World Markets Online, Merchant International Group, IJET Travel Consultancy, PERC

• Expert Assessments from NGOs, Think Tanks: Reporters Without Borders, Heritage Foundation, Freedom House, Amnesty International, Bertelsmann Foundation, Columbia University, International Research and Exchanges Board

• Expert Assessments from Governments, Multilaterals: World Bank CPIA, EBRD, AFDB, ADB, State Dept. Human Rights Report, Trafficking in Persons Report

7

Sources for Rule of Law, 2006DRI Losses and Costs of Crime

Kidnapping of Foreigners

Enforceability of Government Contracts

Enforceability of Private Contracts

EIU Violent crime

Organized crime

Fairness of judicial process

Enforceability of contracts

Speediness of judicial process

Confiscation/expropriation

GCS Common crime imposes costs on business

Organized crime imposes costs on business

Money laundering through banks is pervasive

Quality of Police

Independence of judiciary

Legal framework to challenge the legality of government actions is inefficient

Intellectual Property protection is weak

Protection of financial assets is weak

Tax evasionIllegal donation to parties

GWP Confidence in the police force

Confidence in judicial system

Have you been a victim of crime?

HER Property Rights

HUM Independence of JudiciaryMIG Organised Crime.

Legal Safeguards.

PRS Law and Order, assessment of the strength and impartiality of the legal system

QLM Direct Financial Fraud, Money Laundering and Organized Crime

TPR Trafficking in People Report

WMO Judicial IndependenceCrime - threat to businesses

Cont’d

8

Sources for Rule of Law, 2006 contd.ADB Property Rights

AFR Based on your experiences, how easy or difficult is it to obtain help from the police?

ASD Property Rights

BPS Fairness, honesty, enforceability, quickness & affordability of courts

Property right protection

How problematic is organized crime for the growth of your business.

How problematic is judiciary for the growth of your business.

How problematic is street crime for the growth of your business.BRI Enforceability of contracts

BTI Rule of Law

Private Property

CCR Rule of LawCPIA Property rightsFRH Rule of LawGII Executive Accountability

Judicial AccountabilityRule of LawLaw Enforcement

IFD Access to land

Access to water for agriculture

LBO Trust in Judiciary

Trust in Police

Have you been a victim of crime?

WCY Tax evasion is a common practice in your country

Justice is not fairly administered in societyPersonal security and private property are not adequately protected

Parallel economy impairs economic development in your country

Patent and copyright protection is not adequately enforced in your country

9

Why Aggregate Indicators of Governance?• Governance viewed as a much broader notion than

‘formal rules of the game’• Individual data sources provide a noisy “signal” of

broader concept of governance, e.g.:– trust in police RULE OF LAW

– freedom of press VOICE & ACCOUNTABILITY

• Benefits of Aggregation--through U.C. Method• aggregate indicators are more informative about broad

concepts of governance• broader country coverage (than individual indicators)

• generate explicit margins of error for country scores• less likelihood of outliers

10

Building Aggregate Governance Indicators• Use Unobserved Components Model (UCM) to construct

composite governance indicators, and margins of error for each country

• Estimate of governance: weighted average of observed scores for each country, re-scaled to common units

• Weights are proportional to precision of underlying data sources

• Precision depends on how strongly individual sources are correlated with each other

• Margins of error reflect (a) number of sources in which a country appears, and (b) the precision of those sources

11

Control of Corruption Selected Countries, 2006

-2.5

0

2.5S

OM

AL

IA

MY

AN

MA

R

EQ

. G

UIN

EA

HA

ITI

CA

MB

OD

IA

SU

DA

N

PA

RA

GU

AY

KE

NY

A

CA

ME

RO

ON

CH

INA

GE

OR

GIA

ME

XIC

O

BR

AZ

IL

ITA

LY

SL

OV

AK

IA

CO

ST

A R

ICA

GR

EE

CE

HU

NG

AR

Y

SO

UT

H A

FR

ICA

UR

UG

UA

Y

BO

TS

WA

NA

ES

TO

NIA

SL

OV

EN

IA

UN

ITE

D S

TA

TE

S

CH

ILE

JA

PA

N

SIN

GA

PO

RE

NE

W Z

EA

LA

ND

DE

NM

AR

K

ICE

LA

ND

FIN

LA

ND

Poor Governance

Governance Level

Margins of Error

Good Governance

DISCLAIMER: The data and research reported here do not reflect the official views of the World Bank, its Executive Directors, or the countries they represent. The WGI are not used by the World Bank Group to allocate resources or for any other official purpose.Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A. Kraay and M. Mastruzzi, June 2007, www.govindicators.org. Colors are assigned according to the following criteria: Dark Red: country is in the bottom 10th percentile rank (‘governance crisis’); Light Red: between 10th and 25th percentile rank; Orange: between 25th and 50th percentile rank; Yellow, between 50th and 75th; Light Green between 75th and 90th percentile rank; and Dark Green: between 90th and 100th percentile (exemplary governance). Estimates subject to margins of error.

12

Quality of Rule of Law, 2006

Source for map: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org. Colors are assigned according to the following criteria: Dark Red: country is in the bottom 10 th percentile rank (‘governance crisis’); Light Red: between 10th and 25th percentile rank; Orange: between 25th and 50th percentile rank; Yellow, between 50th and 75th; Light Green between 75th and 90th percentile rank; and Dark Green: between 90th and 100th percentile (exemplary governance). Estimates subject to margins of error.

13

Application 1: Quality of Governance and Rule of Law changes very little in short term?

14

-2

0

2N

EP

AL

TH

AIL

AN

D

BE

LA

RU

S

CO

TE

D'IV

OIR

E

ZIM

BA

BW

E

GR

EE

CE

BE

NIN

VIE

TN

AM

ITA

LY

PA

RA

GU

AY

CA

ME

RO

ON

BR

AZ

IL

AR

GE

NT

INA

GH

AN

A

IND

ON

ES

IA

SIE

RR

A L

EO

NE

SE

RB

IA

NIG

ER

Major Deterioration

(selected countries)

Major Improvement

(selected countries)

Insignificant Change (selected countries)

Change in Voice & Accountability, 98-06

Changes were calculated on the basis of the differences in country estimates from 1998 and 2006. Classification for major deteriorations and improvements were based on 75% confidence interval. Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org

15

Governance Indicators for Ghana, 1998-2006

Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.

16

Governance Indicators for Zimbabwe, 1998-2006

Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.

17

WGI: Rule of Law, 2000-2006, Selected Countries

-2

0

2

Ru

le o

f L

aw

Es

tim

ate

ALBANIA ESTONIA LIBERIA VENEZUELA

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. New Europe Countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia.

Best

2000 2006

18

Application 2: Rule of Law Matters for Development?

• Rule of Law Matters for Development?

• Taking seriously the challenge of Causality Direction

• Starting Point: plotting Rule of Law vs. Income per Capita – at first sight such depiction of correlation conveys potential importance of economic development for rule of law formation

• Yet, upon further reflection…

20

Rule of Law and Per Capita Income

ZWE

ZMB

ZAR

ZAF

UGATZA

TGOTCD

SWZSTP

SOM

SLE

SEN

SDN

RWA

NGA

NER

NAM

MWI

MUS

MRTMOZ

MLIMDG LSO

LBRKEN

GNQGNB

GMB

GIN

GHA

GABETH

ERIDJI

CPV

COMCOG

CMR

CIVCAF

BWA

BFABEN

BDI

y = 0.63Ln(x) - 5.45

R2 = 0.58

-3

-2

-1

0

1

2

3

100 1000 10000 100000

GDP Per Capita in 2003, USD at PPP, log scale

WG

I R

ule

of

La

w 2

00

6

21

Higher Income Does Not Cause Better Governance

ZWE

ZMB

ZAR

ZAF

UGATZA

TGOTCD

SWZSTP

SOM

SLE

SEN

SDN

RWA

NGA

NER

NAM

MWI

MUS

MRTMOZ

MLIMDG LSO

LBRKEN

GNQGNB

GMB

GIN

GHA

GABETH

ERIDJI

CPV

COMCOG

CMR

CIVCAF

BWA

BFABEN

BDI

y = 0.63Ln(x) - 5.45

R2 = 0.58

-3

-2

-1

0

1

2

3

100 1000 10000 100000

GDP Per Capita in 2003, USD at PPP, log scale

WG

I Ru

le o

f L

aw 2

006

Causal Effect of Income on Governance

22

Governance Matters -- The ‘Development Dividend’Isolating Causality: From governance to income

-3

-2

-1

0

1

2

3

-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

Rule of Law 2004

log(Real GDP Per Capita)

Kaufmann-Kraay (2002)

Alcala-Ciccone (2004)

Rodrik-Subramanian-Trebbi (2004)

Acemoglu-Johnson-Robinson (2000)

23

Governance Matters around the world: The 300% ‘Dividend’

• Large Development Dividend of Good Governance: a one-standard-deviation improvement in governance (say, in rule of law or in corruption control) raise incomes per capita in a country by about 300% in long-run

• But is such a decline in corruption unrealistically large?: NO -- One S.D. is the difference from: Somalia Togo or Guinea-Bissau Namibia or Rwanda Botswana or Portugal Netherlands or Sweden

• The impact is from governance to incomes, and not viceversa -- higher incomes alone will not automatically do

24

Development Dividend From Good Rule of Law

Low Rule of Law Medium Rule of Law High Rule of Law

$300

$3,000

$30,000

Data Source for calculations: KK 2004. Y-axis measures predicted GDP per capita on the basis of Instrumental Variable (IV) results for each of the 3 categories. Estimations based on various authors’ studies, including Kaufmann and Kraay.

25

Rule of Law is Associated with Lower Infant Mortality for the Population, 2006

ZWE

ZMB

ZAR

ZAF

YEM

VUT

VNMVEN VCT

UZB

USA

URYUKR

UGATZA

TUR

TUNTTO TON

TMP

TKMTJ K

THA

TGO

TCD

SYRSYC

SWZ

SWESVNSVK

SUR

STP

SLV

SLB

SGP

SEN

SDN

SAUSAM

RWA

RUS ROM QATPRY

PRT

PRK

POL

PNG

PHLPERPAN

PAK

OMNNZL

NPL

NORNLD

NIC

NGA

NER

NAM

MYS

MWI

MUS

MRT

MOZ

MNG

MMR

MLT

MLI

MKD

MHL

MEX

MDV

MDG

MDA

MAR

LVALUX

LTU

LSO

LKA

LIE

LCALBY

LBR

LBN

LAO

KWTKOR

KIR

KHM

KGZ

KEN

KAZ

J PN

J OR

J AM

ITA ISRISL

IRN

IRL

IND

IDN

HUN

HTI

HRV

HND

GUY

GTM

GRD

GRC

GNQGNB

GMB

GIN

GHA

GEO

GBR

GAB

FSM

FRA

FJ I

FIN

ETH

ESTESP

ERI

EGYECU

DZA

DOM

DNK

DMA

DJ I

DEUCZE CYPCUBCRI

CPV

COM

COL

CMR

CIV

CHN

CHLCHECAN

CAF

BWA

BTN

BRB

BRA

BOL

BLZ

BLRBIH

BHSBHRBGR

BGD

BFA

BEN

BEL

BDI

AZE

AUTAUS

ATG

ARM

ARGALB

AGO

ADO

0

40

80

120

160

-2.5 -1.5 -0.5 0.5 1.5 2.5Rule of Law

Infa

nt

Mo

rta

lity

(1

00

K b

irth

s)

Low

LowHigh

High

r = -0.66

Source for Rule of Law: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. Source for infant mortality, WDI 2004.

26

Application 3: De Facto Data Matters?

• De Jure vs. De Facto data

• Why disconnect in development?: Informality of Rules: Limits to de Jure…

• Corruption and Capture matters

27

‘Subjective’ vs. ‘Objective’ Measures

• Perceptions data are very useful even when objective measures exist– But often only type of cross-country data available (e.g.

corruption)• Perceptions matter directly!• Perceptions data add insight over de jure

measures when such objective measures exist, e.g. comparison of:

• statutory number days to start a business from Doing Business database (de jure)

• firms perceptions of ease of business entry from Global Competitiveness Survey (de facto)

– two are weakly correlated in developing countries– prevalence of corruption explains much of gap between

the two

29

Subjective and Objective Measures of Ease of Business Entry: OECD/NIC Sample

2

3

4

5

0 40 80 120Number of Days to start a Business (DB)

Dif

ficu

lty

of S

tart

ing

a B

usi

nes

s (E

OS

)

Low

High

r = 0.51

30

Subjective and Objective Measures of Ease of Business Entry: Developing Country Sample

1

3

5

7

0 40 80 120 160

Number of Days to start a Business (DB)

Dif

ficu

lty

of S

tart

ing

a B

usin

ess

(EO

S)

Low

High

r = 0.24

31

Explaining Difficulty in Starting a Business (de facto): Corruption Matters more than De Jure Regulations

Source: Kaufmann, Kraay and Mastruzzi (2005). The vertical axis measures the estimated impact on firms’ responses to a survey question regarding the difficulty of starting a business (the 2004 Global Competitiveness Survey) corresponding to a de jure measure (capturing the number of days required to start a business) moving from the 50th percentile to the 75th percentile (first bar) and from also having overall corruption levels move from the 50th to the 75th percentile (second bar).

How Much Harder is it to Start a Business...

0

0.2

0.4

0.6

0.8

….If Days to Start a Business isHigh? ['DE Jure']

…And If Corruption is High?['De Facto']

32

0

20

40

60

80

OECD East AsiaNICs

FormerSoviet Union

LatinAmerica

NewlyAccessed EU

Fre

quen

cy o

f B

ribe

ry

Utility Taxation Judiciary Capture

Unbundling Different Manifestations of Bribery, EOS 2006% Firm Report High Bribery (1-3)

Source: EOS firm survey, WEF2006. Questions: In your industry, how commonly firms make undocumented extra payments or bribes connected with permits / utilities / taxation / awarding of public contracts / influence laws and regulations / judiciary? (common…never occurs).

Bribery in:

Low Bribery

33

0

10

20

30

40

50

Armenia Bosnia Estonia Macedonia Georgia Hungary Lithuania Serbia Slovenia

% o

f fi

rms

aff

ecte

d b

y S

tate

Ca

ptu

re

Parliamentarians

Government Officials

Local Government Officials

Misrule of Law and Informality of Rules in Extremis: Measuring Extent of State

Capture in Transition, BEEPS 2005

Source: BEEPS 2005. Questions: To what extent have the following practices had a direct impact on your business: private payments to parliamentarians to affect their votes; private payments to government officials to affect the content of government decrees; private payment to local government officials to affect their votes or content of government decrees. Y-axis reports % of firms who reported high capture (3 or 4).

Bribery to affect laws:

34

Application 4: Revisiting Historical Origins Determinism?

• Search for fundamental antecedents to institutional outcomes today: important

• But deeper empirical scrutiny raises questions: i) for developing countries, & ii) normative outcomes of LO (and others?)

• Statistical Effects Significant with worldwide data?: Somewhat…

• Magnitude large with worldwide data?: No

• Significant and sizeable effects for emerging economies: not really

35

Governance and Legal Origin, Full Sample (160 countries)

-2

0

2

Control ofCorruption

GovernmentEffectiveness

PoliticalStability / No

violence

Rule of Law RegulatoryQuality

Voice &Accountability

Go

vern

ance

Rat

ing

Common Law Civil Law

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. and Djankov et al (2005).

R = 0.13 R = 0.12 R = 0.10 R = 0.18 R = 0.12 R = 0.11

37

Governance and Legal Origin, Emerging Economies (POP>1M)

-2

0

2

Control ofCorruption

GovernmentEffectiveness

PoliticalStability / No

violence

Rule of Law RegulatoryQuality

Voice &Accountability

Go

ve

rna

nc

e R

ati

ng

Common Law Civil Law

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. and Djankov et al (2005).

R = 0.00 R = 0.02 R = -0.10 R = 0.03 R = 0.00 R = 0.01

38

Rule of Law & Legal origin, Emerging Economies (POP>1M)

Today

History

Bottom Half WGI Rule of Law 2006

Top Half in WGI Rule of Law 2006

Common Law Origin

swaziland jamaica liberia sierra leone papua new guinea somalia zambia zimbabwe nepal kenya sudan nigeria bangladesh pakistan

trinidad and tobago gambia botswana lesotho namibia united arab emirates malawi sri lanka ghana saudi arabia malaysia uganda tanzania south africa thailand india

Civil Law Origin

guinea-bissau albania congo central african republic eritrea Nicaragua libya laos togo paraguay Honduras burundi haiti bolivia guinea chad guatemala ecuador niger cambodia angola cameroon Ivory coast yemen venezuela iraq peru afghanistan algeria colombia myanmar Congo DR iran ethiopia indonesia

mauritius gabon kuwait oman mauritania panama lithuania uruguay lebanon puerto rico costa rica jordan el salvador benin dominican republic rwanda tunisia senegal burkina faso mali chile madagascar syria mozambique romania morocco argentina turkey egypt vietnam philippines mexico brazil

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. and Djankov et al (2005). Full Sample included 98 countries. Top half/Common Law=16; Top Half/Civil Law:33; Bottom half/Common Law=14; Bottom Half/Civil Law: 35 countries.

39

Governance & Settler Mortality, Countries with more than 1 million people (152 countries)

-2

0

2

Control ofCorruption

GovernmentEffectiveness

PoliticalStability / No

violence

Rule of Law RegulatoryQuality

Voice &Accountability

Go

vern

ance

Rat

ing

Low Settler Mortality High Settler Mortality

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. and Acemoglu et al (2002).

R = 0.52 R = 0.53 R = 0.37 R = 0.53 R = 0.47 R = 0.46

40

Rule of Law & Settler Mortality, World for countries (POP>1M)

Today

History

Bottom Half in Rule of Law 2006

Top Half in Rule of Law 2006

Low Settler Mortality

Albania Lebanon Bosnia-Herzegovina Moldova Georgia Libya Dominican Rep. Bolivia Serbia Belarus Cuba Guatemala Ecuador Syria Korea, North Iraq

Peru Argentina Colombia Ukraine Myanmar Iran Ethiopia Mexico Russia Pakistan

Mauritius Estonia Slovenia Latvia Kuwait Mongolia Lithuania Uruguay Puerto Rico New Zealand Ireland Singapore Croatia Norway Finland Slovak Republic Jordan Denmark Israel Hong Kong Switzerland Bulgaria Austria Sweden Tunisia Hungary Czech Republic Belgium Portugal Greece Chile Netherlands Sri Lanka Australia Romania Malaysia Canada Poland Spain South africa Korea, South Italy United Kingdom France Turkey Egypt Germany Japan Brazil United States India China

High Settler Mortality

Swaziland Gabon Guinea-Bissau Jamaica Armenia Liberia Congo Central Africa Republic Eritrea Turkmenistan Kyrgyz Republic Nicaragua Sierra Leone Papua New Guinea Laos Togo Paraguay Tajikistan El Salvador Honduras Burundi Somalia Azerbaijan Benin Haiti Rwanda Guinea Chad Zambia Zimbabwe Niger Cambodia Kazakhstan Angola Cameroon Cote d'Ivoire Mozambique Yemen Venezuela Uzbekistan Nepal Uganda Afghanistan Algeria Kenya Sudan Zaire Nigeria Bangladesh Indonesia

Trinidad & Tobago Gambia Botswana Lesotho Namibia Macedonia Oman Mauritania Panama Costa Rica United Arab Emirates Senegal Malawi Burkina Faso Mali Madagascar Ghana Taiwan Saudi Arabia Morocco Tanzania Thailand Vietnam Philippines

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. and Djankov et al (2005). Full Sample included 114 countries. Top half/ Low Mortality=52; Top Half/High Mortality:24; Bottom half/Low Mortality=26; Bottom Half/High mortality: 50 countries.

42

Application 5: Limits to Incrementalism?

• Impact of Incremental or Partial Reforms intrinsically limited in misrule of law settings?

43

WGI: Application of Rule of Law, Regional Averages, 2006

0

20

40

60

80

100

OECD East Asia NICs South Asia Former SovietUnion

Latin America Newly AccessedEU

Per

cen

tile

Ran

k (0

-100

)

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. New Europe Countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia.

44

0

20

40

60

80

Former Soviet Union Latin America Newly Accessed EU

Legal framework Independence of Judiciary Parliament Police

% Firms reporting satisfactory qualityQuality of Institutions, Rule of Law, view of the firm, EOS 2006

Source: EOS firm survey, WEF2006.

45

WGI: Rule of Law, 2000-2006, Selected Countries

-2

0

2

Go

ve

rna

nc

e E

sti

ma

te

ALBANIA ESTONIA LIBERIA VENEZUELA

Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, July 2007 - www.govindicators.org. New Europe Countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia.

Best

2000 2006

46

Some Conclusions – for debate1. Rule of Law & Governance can be measured2. Not relying on one single source: triangulation

and aggregation, while also using disaggregated sources, & taking margins of error seriously

3. WGI, aggregate and disaggregate, can be used to test competing historical origin theories

4. Econometric model: Taking seriously: i) causality direction, and, ii) omitted variable bias

5. Magnitude of coefficients matter (not just significance)

6. Limits to De Jure measures of Rule of Law, and Perceptions Matter; measuring de facto phenomena

7. Informality in Development: crucial for measurement and for policy

8. In particular: Capture, Patronage, Corruption9. Limits to Incrementalism: some shocks needed?

47

Media

Private Sector

Municipal Government

Military

State (Bureaucracy)Political Parties

Civil Society

International Legislative Branch

Judiciary

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Entrenched Corruption Networks: Entrenched Corruption Networks: The Case on Montesinos in PeruThe Case on Montesinos in Peru

Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Vladimiro Montesinos

Alberto Fujimori