Measuring Governance: Why do errors matter?

Leandro Magnusson and Yashar Tarverdi

No 18-10, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: The World Governance Indicators (WGI) are well-known proxies for institutions and widely used in many studies across different disciplines. Each of the six WGI are constructed by aggregating several baseline indicators using the Multiple Indicators Multiple Cause (MIMC) method. This method assumes that the errors associated to the baseline indicators are independent. Here, we extend the MIMC method by allowing cluster dependence among those errors. The differences between the original and re-estimates of the WGI are statistically significant. We compare the results of three highly cited papers to illustrate that the new indices can alter their conclusions.

Keywords: Governance Indicators; Measurement Error; MIMC; Institutions (search for similar items in EconPapers)
JEL-codes: C38 C43 P16 (search for similar items in EconPapers)
Pages: 37
Date: 2018
Note: MD5 = b4185e8d3b35d52e5447e15bd2c4bb3f
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Related works:
Journal Article: Measuring governance: Why do errors matter? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:18-10

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