Governance indicators are now widely used as tools for conducting development dialogue, allocating external assistance, and influencing foreign direct investment. This paper argues that available governance indicators are not suitable for these purposes as they do not conceptualize governance and fail to capture how citizens perceive the governance environment and outcomes in their countries. The paper attempts to fill this void by conceptualizing governance and implementing a uniform and consistent framework for measuring governance quality across countries and over time based on citizens' evaluations. Using data from the World Values Survey (and other sources) we implement this framework into practice and build citizen-centric governance indicators for 120 countries over the period 1994 to 2005.

Introduction

Since the publication of pioneering work on measuring governance quality by Huther and Shah (1998), there has been a proliferation of composite worldwide governance indicators purporting to measure various aspects of governance quality (see Arndt, 2008, for the history and politics of governance ratings). The growth of these indicators has been spurred by generous support by the development assistance community, especially multilateral development finance agencies, and the infinite appetite of media and the academic community for governance assessments and country rankings. Governance indicators are now being used as tools for conducting development dialogue, allocating external assistance and influencing foreign direct investment. Each new indicator series is now released with great fanfare from major industrial country capitals and the popular press uses these indicators to name and shame individual countries for any adverse change in rank order over time or across countries. The development assistance community is increasingly using these indicators in making critical judgments on development assistance. The World Bank’s International Development Association (IDA) allocation - a window of subsidized lending to the developing world and the United States Agency for International Development’s Millennium Challenge Account use various governance indicators as criteria for allocating external assistance. At the same time, some of the recent findings of these indicators have also led to much controversy and acrimony and thereby contributing to complicating the dialogue on development effectiveness. In view of the influential nature of these indicators and potential to do harm if judgments embodied in these indicators are biased and erroneous, it is imperative that they capture critical dimensions of the quality of governance and all countries are evaluated using uniform and reasonably objective assessment criteria.

Do the existing indicators meet this test? While the literature on this subject is woefully inadequate and thin, four widely used indicators - namely theWorld Bank’s Worldwide Governance Indicators (WGIs), Overseas Development Institute’s World Governance Assessments (WGAs), Mo Ibrahim Foundation’s Indexes of African Governnace (IIAGs) and the United Nations Economic Commission for Africa’s African Governance Report Indicators (AGRIs) - all lack a conceptual framework on governance, lack a citizen-based evaluations and have time and country assessment inconsistencies, making their rankings suspect. A number of recent papers have been especially critical of WGIs for lacking ”concept” (implying lack of clarity in conceptualization) and ”construct” (implying lack of clarity in measurement) validity, sample bias (mostly interest group views), lack of transparency and time inconsistency of definitions and measurements (see Arndt, 2008, Arndt and Oman, 2006, Kurtz and Schrank, 2007, Iqbal and Shah, 2006, 2008, Langbein and Knack, 2008, Schrank and Kurtz, 2008, Thomas, 2006, Thompson and Shah, 2003). One of the most important limitations common to all available composite indexes of governance is that they fail to capture how citizens perceive the governance environment and outcomes in their own countries.

For governance assessments to be useful for policy purposes, they must conceptualize governance and provide uniform and consistent criteria for measuring governance across countries and over time. Foremost concerns for such measurement should be citizens’ evaluation of governance environment and outcomes in their own countries supplemented of course by objective indicators of the same. For development assistance purposes, these indicators could be supplemented by expert-based evaluations. There is some work available on objective indicators as done by the Doing Business indicators of the World Bank and on expert-based evaluations as done for the Global Integrity Index. The most important void in our knowledge is how citizens view governance environment and outcomes in their countries. This paper takes a first step to fill that void.

The rest of the paper is organized as follows. Section 2 discusses conceptual issues in measuring governance, specifies a citizen-centric conceptual framework on measuring governance quality. Section 3 presents an empirical framework, data sources and aggregation techniques. Section 4 presents preliminary results. In Section 5 we discuss the robustness of our results, as well as the contributions and limitations of the empirical approach. A concluding section outlines an agenda for future research.