aggregate indicators; and (3) the possibility of trends in global averages of governance, with implications for the interpretation of the baseline WGI estimates where global means are normalized to zero in every period. Our updated – and in some cases expanded – analysis is consistent with our earlier evidence and supports our previous conclusions that the methodological choices in the baseline WGI estimates are appropriate. Specifically, we do not find clear evidence of correlated perceptions errors across data sources, and we find that an equally weighted (instead of precision weighted) average of the data sources leads to very similar estimates of governance across countries. We also find no evidence of significant trends in global averages of governance as measured by the WGI data sources. This means that the baseline WGI choice of units that normalizes the global mean of governance to be the same in each period is appropriate, and that changes over time in economies’ relative positions on the six aggregate WGI measures broadly correspond to absolute changes as collectively measured by the WGI data sources.

The WGI are widely used for broad cross-country and over-time comparisons of governance in a variety of contexts. They are frequently used in academic and policy research, as evidenced by the over 25,000 citations to the various WGI methodology papers recorded in Google Scholar.<sup>2</sup> They are used – together with a variety of other indicators – by the United States Millennium Challenge Corporation to determine country eligibility for its aid programs.<sup>3</sup> Recognizing that they have predictive power for debt servicing difficulties, the WGI are used by major commercial risk rating agencies as one of many inputs to their models to assess sovereign risk, as well as by the International Monetary Fund as a key indicator of governance in its Debt Sustainability Framework for Market Access Countries.<sup>4</sup> Fourth, they are used – together with many other indicators – to inform environmental, social and governance (ESG) investment strategies and corporate social responsibility policies by firms in the private sector.<sup>5</sup> The rest of this paper is organized as follows. Section 2 defines the six governance dimensions, provides an overview of the 35 WGI data sources, and describes how the individual variables from each

> 2 The top five most cited WGI methodology papers (with hyperlinks to their Google Scholar listings) are Kaufmann, <u>Kraay and Mastruzzi (2011), Kaufmann, Kraay and Mastruzzi (2009), Kaufmann, Kraay and Mastruzzi (2004), Kaufmann, Kraay and Zoido-Lobaton (1999b) and Kaufmann, Kraay and Zoido-Lobaton (1999a).</u>

> 3 For information on MCC eligibility criteria, see htps://www.mcc.gov/who-we-select/scorecards/.

> 4 For example, for information on the Fitch sovereign rating methodology, click here and for Moody’s, click here. See also IMF (2021)

> 5 For example, the WGI are included in the World Bank’s Sovereign ESG Data Portal, they are used in the Morgan <u>Stanley Capital Internatonal (MSCI) ESG Government Ratngs Methodology</u> and the FTSE-Russell Sustainable <u>Sovereign Risk Methodology, and they are used by the Disney Corporation to inform its Permited Sourcing Countries policy.</u>

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