Measuring governance: Why do errors matter?

Leandro Magnusson and Yashar Tarverdi

World Development, 2020, vol. 136, issue C

Abstract: The Worldwide Governance Indicators (WGI) are well-known proxies for institutions and are widely used in many studies across different disciplines. Each of the six WGI is constructed by aggregating several baseline indicators that reflect information about a single latent variable. The method used, however, assumes that the errors associated with the baseline indicators are independent. Here, we extend this method by allowing cluster dependence among those errors. The differences between the original and new estimates of the WGI are statistically significant. We compare the results of two highly cited papers with the ones obtained from our method to illustrate that the new indices can alter their conclusions.

Keywords: Governance indicators; Measurement error; Institutions (search for similar items in EconPapers)
JEL-codes: C38 C43 P16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:136:y:2020:i:c:s0305750x2030187x

DOI: 10.1016/j.worlddev.2020.105061

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