# IMPROVING GOVERNANCE

The first result of this paper-that governance matters significantly for<sup>growthin theverylong</sup> run-is not new, and it validates earlier such findings. The second result,<sup>however,is new. It suggests that</sup> improvements in governance will not occur automatically as the<sup>development processunfolds;no</sup> virtuous circle will suddenly begin to operate. These results suggest<sup>thatinterventionstoimprove</sup> governance are warranted. Unfortunately, however, the cross-country<sup>evidence presentedthusfarisnot</sup> very informative for policymakers intent on formulating and implementing<sup>specificstrategiestoimprove</sup> governance in their countries.

In the past few years, the World Bank has designed and implemented<sup>detailedcountrydiagnostic</sup> surveys that provide insights and help identify specific actions to<sup>improve governance.Thesegovernance</sup> and anticorruption diagnostics rely on in-depth, country-specific<sup>surveysof thousandsof public-service</sup> users, firms, and public officials, in order to gather specific information<sup>aboutinstitutionalvulnerabilities</sup> within a country. These separate surveys permit triangulation<sup>andconsistency checksfortheresults</sup> across respondent categories, while probing in more detail into a broad<sup>arrayof governanceissues within</sup> countries. So far, the surveys have been applied to a score of countries worldwide.<sup>28</sup> One of the innovations in these surveys has been their emphasis<sup>on unbundling governanceand</sup> corruption into more specific dimensions. This has helped to highlight<sup>thecauses,consequences,and</sup> costs of various forms of misgovernance, and it has shown how<sup>institutional qualitycanvarywidely</sup> across institutions within a particular country.<sup>29</sup> The results from three<sup>recent countrygovernancestudies</sup> in Latin America are indicative of the multiple dimensions of corruption<sup>worldwide.Figure</sup><sup>_5_summarizes</sup> evidence from Colombia, Honduras, and Peru on the prevalence of<sup>four distinct dimensionsof corruption:</sup> the frequency of bribery in obtaining services, in public procurement,<sup>inthebudgetprocess,andin</sup> shaping the formation of the policy, legal, and regulatory framework.

This section focuses on the last form of corruption, which<sup>wecall statecapture.Statecaptureis</sup> defined as the undue and illicit influence of the elite in shaping the<sup>laws, policies,andregulationsof the</sup> state. In its emphasis on the formulation and shaping of state laws<sup>andregulations,state capturedeparts</sup> 28. For details on governance diagnostic instruments and country reports, visit www.worldbank.org/wbilgovernance/tools.htm.

29. These in-depth diagnostics, which complement insights from the composite<sup>governance indicators presentedin</sup> earlier sections, can provide specific inputs for action programs at the<sup>countrylevelby:i) unbundlinggovernance</sup> and corruption into more detailed and specific dimensions and assessing<sup>therelativeimportanceand prevalenceof</sup> the unbundled components; ii) assessing the quality of govemance and<sup>performanceof thekeyinstitutionswithin</sup> the country; iii) assessing the costs of various forms of misgovemance (such<sup>as throughthelinkto povertyor to the</sup> quality and extent of service delivery); iv) identifying the most important<sup>factorsaffectinggovernanceand</sup> performance (such as external versus internal accountability mechanisms,<sup>as well as issuesof undue influencebythe</sup> elite and state capture); and v) identifying priorities for action (based on the<sup>aboveitems).</sup> 26