Capacity Development and GovernanceEmpirical Diagnostic Assessments

Building blocks and illustrations of the 3-prongempirical approach to CE diagnostics

Daniel Kaufmann, WBIDraft for preliminary/informal discussion only

Institutional Capacity: From revisiting ‘Capacity Building’to Measuring and Diagnosing Capacity Enhancement

Institutional Capacity unbundling into 3 dimensions:1. Physical capital and hardware (physical

infrastructure, computers, etc.) (K);2. Human and knowledge capital (including

organizational & administrative capital, i.e. the‘institutional software’) (HK), and,

3. Governance and political capital (GPK).

Capacity Enhancement = Changed capacity over time

Empirical Approach to Governance Capacity Diagnostics:Starting point: building from governance diagnostics

1. ‘Macro’: Worldwide Aggregate Governance Indicators: 200countries, 6 components, periodic – it permits broad proxy ofcapacity enhancement

2. ‘Mezzo’: Cross-Country Surveys of Enterprises3. ‘Micro’: Specialized, in-depth, in-country Governance and

Institutional Capacity Diagnostics: Includes surveys of: i) userof public services (citizens); ii) firms, and iii) public officials

• Item #1 above is central for comparative monitoringworldwide and to raise general ‘flags’ on country performance,while on other extreme, item #3 is key as in-depth input toconcrete capacity enhancement strategy/program at thecountry level. Increasingly, however, with improvements ofcross-country enterprise surveys, item #2 can play animportant role in benchmarking and monitoring capacityenhancement as well.

Overall Evidence is Sobering:Progress on Governance is modest at best, so far

• Evidence points to slow, if any, average progressworldwide on key dimensions of governance

• This contrasts with some other developmentaldimensions (e.g. quality of infrastructure; quality ofmath/science education; effective absorption of newtechnologies), where progress is apparent

• At the same time, substantial variation cross-country,even within a region. Some successes.

•And it is early days.

Capacity Enhancement Assessment, Level I:The ‘Macro’ or Aggregate Governance Indicators+

• Some Illustrations from updatedGovernance Indicators database: 200countries, 1996-2002, to be continued

Governance: A working definition – whichcontains much of what is relevant for CE

• Governance is the process and institutions bywhich authority in a country is exercised:

(1) S -- the process by which governments are selected,held accountable, monitored, and replaced;

(2) E -- the capacity of gov’t to manage resources andprovide services efficiently, and to formulate andimplement sound policies and regulations; and,

(3) R -- the respect for the institutions that governeconomic and social interactions among them

Operationalizing Governance:Unbundling its Definition into Components that

can be measured, analyzed, and worked on

Each of the 3 main components of GovernanceDefinition is unbundled into 2 subcomponents:

• Voice and External Accountability• Political Stability and lack of Violence&Terror• Quality Regulatory Framework• Government Effectiveness• Control of Corruption• Rule of Law

We measure these sixgovernance components…

Inputs for Governance Indicators 2002Publisher Publication Source Country Coverage

•Wefa’s DRI/McGraw-Hill Country Risk Review Poll 117 developed and developing

•Business Env. Risk Intelligence BERI Survey 50/115 developed and developing

•Columbia University Columbia U. State Failure Poll 84 developed and developing

•World Bank Country Policy & Institution Assmnt Poll 136 developing

•Gallup International Voice of the People Survey 47 developed and developing

•Business Env. Risk Intelligence BERI Survey 50/115 developed and developing

•EBRD Transition Report Poll 27 transition economies

•Economist Intelligence Unit Country Indicators Poll 115 developed and developing

•Freedom House Freedom in the World Poll 192 developed and developing

•Freedom House Nations in Transit Poll 27 transition economies

•World Economic Forum/CID Global Competitiveness Survey 80 developed and developing

•Heritage Foundation Economic Freedom Index Poll 156 developed and developing

•Latino-barometro LBO Survey 17 developing

•Political Risk Services International Country Risk Guide Poll 140 developed and developing

•Reporters Without Borders Reporters sans frontieres (RSF) Survey 138 developed and developing

•World Bank/EBRD BEEPS Survey 27 transition economies

•IMD, Lausanne World Competitiveness Yearbook Survey 49 developed and developing

•Binghamton Univ. Human Rights Violations Research Survey 140 developed and developing

Control of Corruption: one Aggregate Indicator(selected countries, for illustration, based on 2000/01 research data)

-2.5

0

2.5

Co

ng

o,

De

m.

Re

p.

(Za

ire

)

KE

NY

A

ZIM

BA

BW

E

IND

ON

ES

IA

TA

NZ

AN

IA

KO

RE

A, N

OR

TH

HA

ITI

MO

LD

OV

A

AR

ME

NIA

VIE

TN

AM

IVO

RY

CO

AS

T

BA

NG

LA

DE

SH

AL

BA

NIA

IND

IA

CH

INA

ME

XIC

O

BU

LG

AR

IA

CR

OA

TIA

MO

ZA

MB

IQU

E

MA

LA

YS

IA

UR

UG

UA

Y

TU

NIS

IA

CO

ST

A R

ICA

BO

TS

WA

NA

CY

PR

US

NA

MIB

IA

CH

ILE

NE

W Z

EA

LA

ND

Source: KKZ 2000/01

POOR

GOOD

CorruptionLevel

Marginof Error

GoodCorruptionControl

Governance World Map :

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; M ap downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the fol lowing criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50% ; Yel low,

between 50% and 75% ; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map :

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; M ap downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the fol lowing criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50% ; Yel low,

between 50% and 75% ; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map:

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; M ap downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the fol lowing criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50% ; Yel low,

between 50% and 75% ; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map :

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; M ap downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the fol lowing criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50% ; Yel low,

between 50% and 75% ; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map :

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; M ap downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the fol lowing criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50% ; Yel low,

between 50% and 75% ; Light Green between 75% and 90% ; Dark Green above 90%

Governance Indicators: Botswana, 1998-2004

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the fol lowing criteria: Dark Red, bottom 10th

percenti le rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yel low, between 50th and 75th ; Light Green between 75th and 90th ;

Dark Green above 90th.

Governance Indicators: Chile 1998 vs. 2004

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the fol lowing criteria: Dark Red, bottom 10th

percenti le rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yel low, between 50th and 75th ; Light Green between 75th and 90th ;

Dark Green above 90th.

Capacity Enhancement Assessment, Level II:The ‘Mezzo’: Cross-country enterprise-based

• Illustrations for 4 countries from newdataset on enterprises from over 100countries

• Enterprise responses from this type ofsurveys permit nowadays an assessment ofkey CE and governance dimensions

Botswana – the ‘Mezzo’ Level of CE Assessment, 22 clusters

0

50

100

Con

trol

of c

orru

ption

Cor

porat

e Res

ponsib/G

over

nance

Dec

entr

aliz

atio

n

Envi

ronm

ent

Finan

cial

Sec

tor Cap

acity

Finan

cial

Gov

ernan

ce

Gov

ernm

ent Effec

tive

ness

Gen

der Equ

ality

Hum

an C

apita

l

Multi

late

ral O

rgan

izat

ions

Qual

ity

of Infr

astr

ucture

Leg

al e

ffec

tive

ness

Qual

ity o

f lab

or m

arket

s

Politi

cal F

inan

cing

Par

liam

ent Effec

tive

ness

Pol

ice

Effec

tive

ness

Politi

cal I

nfluen

ce

Reg

ulato

ry C

apac

ity

Tec

hnolog

y

Tax

effic

iency

Unof

ficia

ldom

Voi

ce &

Acc

ounta

bility

Percen

tile

Ra

nk

(0

-10

0)

Source: EOS 2003 WEF, preliminary. Percentile ranks based on comparative performance among the 103 countries in thesample. All variables rated from 0 (very bad) to 100 (excellent).

Capacity Enhancement Assessment, Level III:In-Country, In-depth CE diagnostic

• A: Illustrations of a number of countries(LAC-focus) in many dimensions

• B: Illustration for one country: The case ofPeru

Index of Transparency

0 10 20 30 40 50 60 70 80

Indonesia (2001)

Paraguay (1999)

Honduras (2001)

Bolivia (1999)

Colombia (2001)

Peru (2001)

Ecuador (2000)

As reported by public officials GoodPoor

Index of Openness

0

10

20

30

40

50

60

70

80

Frequency with which rules and

regulations are announced and opened to

the internal of the institution

Colombia (2001)

Honduras (2001)

Peru (2001)

Bolivia (1999)

Indonesia (2001)

As reported by public officials

High

Low

Index of Quality of Rules(within public administration to manage resources)

0

10

20

30

40

50

60

70

80

90

Indonesia

(2001)

Honduras

(2001)

Bolivia

(1999)

Colombia

(2001)

Peru

(2001)

Ecuador

(2000)

Paraguay

(1999)

As reported by public officials

High

Low

Index of Quality of Rules(to manage personnel and budget resources)

60

62

64

66

68

70

72

74

76

78

80

Colombia (2001) Honduras (2001) Peru (2001)

Personnel

Budget

As reported by public officials

High

Low

Index of Meritocracy(within the public administration to manage human

resources)

0 20 40 60 80 100

Indonesia (2001)

Honduras (2001)

Peru (2001)

Bolivia (1999)

Ecuador (2000)

Colombia (2001)

Paraguay (1999)

As reported by public officials HighLow

Index of Degree of Enforcement(of decisions and regulations within public

administration)

0

10

20

30

40

50

60

70

80

Indonesia

(2001)

Honduras

(2001)

Bolivia

(1999)

Colombia

(2001)

Peru

(2001)

Ecuador

(2000)

Paraguay

(1999)

As reported by public officials

High

Low

Understanding Causal Factors in CE andGovernance Underperformance

• Illustrating the extent to which politicaldeterminants, meritocracy, transparency,and voice and accountability matters

-5

0

5

10

15

20

Low Moderately Low Moderately High High

Politicization

New Diagnostic Tools permit measuring important dimensionsof capacity – illustration #1 from Bolivia diagnostics:

How Politicized Agencies exhibit Budgetary Leakages

Yellow columns depict the unconditional average for each category. Blue line depicts the controlled causal effect fromX to Y variables. Dotted red lines depict the confidence ranges around the causal effect depicted by the blue line.

Public Prosecutor

Electricicy company

Cent. BankM of Fin - Income

National Fin. Corp.

MunicipalityPresidency

M of Fin - Treasury

Attorney General

Congress

Undersec. Of Gov't

Electoral Supreme TribunalCourts

Universities and schools

M of Energy and Mines

M of Fin - BudgetUndersec. Of Social Welfare

Telephone company

National Council of TransitProv. Council

Comptroller

Real Estate Bank

y = -0.05x + 6.05

R2

= 0.50

r=-0.71

1

2

3

4

5

40 50 60 70 80 90 100

Meritocracy in Hiring and Promotion

Public Officials Survey: Meritocracy in the Public Service

Can Help Reduce Corruption

High

Low

Illustration #2: Link between meritocracy and institutional integrity

Source: Ecuador Diagnostic

Citizen Voice Improves Accessibility ofPublic Services to the Poor

Based on Public Officials Survey. The sample of institutions includes 44 national, departmental,and municipal agencies which are a prior anticipated to be accessible to the poor

0

20

40

60

80

100

10 20 30 40 50 60 70 80 90

Voice / External Accountability

Acc

essi

bil

ity t

o t

he

Poor

ControlledCausalLink

r = 0.54

Transparency within Government AgenciesPrevents Purchase of Public Positions

Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

3

6

9

12

15

18

Low Moderately Low Moderately High High

Internal Transparency

Jo

b P

urc

ha

se

Simple Average Association Control Causal Link Margin of Error

We have learnt that InstitutionalQuality Matters Enormously…

The ‘Dividend’ of Good GovernanceInfant Mortality and Corruption

0

10

20

30

40

50

60

70

80

90

Weak Average Good

Control of Corruption x Development Dividend

0

2,000

4,000

6,000

8,000

10,000

12,000

Weak Av erage Good

Regulatory Burdenx Development Dividend

Per Capita Income and Regulatory Burden

Literacy and Rule of Law

0

25

50

75

100

Weak Average Good

Rule of Law x Development Dividend

Per Capita Income and Voice and Accountability

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Weak Average Strong

Voice and Accountabilityx DevelopmentDividend

Note: The bars depict the simple correlation between good governance and development outcomes. The line depicts thepredicted value when taking into account the causality effects (“Development Dividend”) from improved governance to betterdevelopment outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

1

3

5

Low Middle High

Extent of Transparency

Transparent Information by Government

Effective Parliamentary Oversight

Corporate Ethics

Annual GDP Growth (%)

Transparency, Parliaments, Corporate Ethics, and GDP Growth

Source: Annual GDP growth over 1999-2001 WDI 2002; GDP is computed in PPP terms. The various transparency /governance variables drawn from Executive Opinion Survey, 2002.

1. ‘Data Power’: Governance and Institutional Capacity can bemeasured, monitored and rigorously analyzed -- & it Matters

2. Little Progress on average on Governance and GovernanceCapacity-- Sobering Reality in past 10 years, but a number ofcountries have done well, and Bank has given support

3. Misdirected Approaches to Technical Assistance and Capacity-Building – Key to revisit in light of evidence: central role ofGovernance and Transparency?

4. Some Lessons – Did we under-estimated centrality ofimproving governance and corruption control, and within it,the role of: i) Politics; Vested interests of private and politicalelite; ii) Participatory Collective Action, Voice &Accountability, and, iv) Transparency Strategies

5. Broader Implications for Capacity Enhancement

Some Key Issues and Challenges