to measure governance as divided into two classes: rules-based measures (e.g. does a country have anti-corruption legislation?) and outcome-based measures (e.g. is the anticorruption legislation enforced?). The Worldwide Governance Indicators (WGI) project<sup>3</sup> gathers both rules-based and outcomes-based measures from multiple sources (310 variables from 30 different sources in the latest iteration); clusters them into six dimension of governance (voice and accountability; government effectiveness; control of corruption; regulatory quality; rule of law; and political stability and absence of violence); and then aggregates and normalizes them. Using this wide range of data sources, it is argued, maximizes the use of information and reduces bias.

The work on governance and development is an ongoing process of refinement, new data collection, testing hypotheses and learning. The creators of these various indicators regularly warn against misusing their governance indices; however the measures are nonetheless consistently misused by investors, journalists, and academics. Some of the most common mistakes are to interpret cross-country differences as if there were no measurement error or to judge a country‟s change in its ranking over time as significant when the underlying measures are only relative (Arndt and Oman 2006).

Even when used correctly, the implications for public policy are not straightforward. Improvements in a governance mechanism can be both cause and consequence (i.e. reverse causality), the result of other changes that simultaneously improve country performance, or necessary but not sufficient conditions for improving country performance. Studies of governance that utilize cross-country data, in particular, are subject to an ongoing and vigorous debate and scrutiny over data, methods, and interpretation.

Three lessons can be drawn from the international development literature on governance. First, governance can be measured. While many measures suffer drawbacks, advances in how measurements are made and how they are used (e.g. addressing bias, reporting errors) show that this is still a fruitful endeavor. Second, governance measures can be useful both for advocacy and analysis. Organizations like Transparency International show how creating an index can keep an otherwise vague issue like corruption visible as a public policy issue. At the same time, an extensive research literature is using governance indicators to further our understanding of how different aspects of governance affect a country‟s performance. Finally, misuse and misinterpretation of governance measures are common. By recognizing particular errors related to misattribution of causality and considering particular mechanisms to be separable from their context, it should be possible to use these measures more effectively.

The term “governance” has entered the health sector literature in at least three different ways, paralleling and influenced by these other bodies of work. As in the corporate and public sector literature, part of the health sector literature has looked at governance from the perspective of relationships among actors as they influence the behavior of specific organizations such as hospitals (Harding and Preker 2003) or mandatory health insurance institutions (Savedoff and Gottret 2008). Much as the corporate and public sector literature was extended to include broader social goals, another stream of work in the

> 3 <u>http://info.worldbank.org/governance/wgi/index.asp</u>

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