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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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