WPS8299 Policy Research Working Paper 8299 Public Disclosure Authorized Can We Measure the Power of the Grabbing Hand? A Comparative Analysis of Different Indicators Public Disclosure Authorized of Corruption Alexander Hamilton Craig Hammer Public Disclosure Authorized Public Disclosure Authorized Development Economics Development Data Group January 2018 Policy Research Working Paper 8299 Abstract Sustainable Development Goal 16 is explicitly committed to indicator, despite some important reservations and lim- measuring aspects of corruption over time, and the identifi- itations, are the most valid measures of the magnitude of cation of robust indicators to do so is an important endeavor. overall corruption in many country contexts. However, in This paper critically reviews the strengths and weaknesses every case, the initial results using one indicator should be of various objective and subjective indicators of corrup- cross checked with the use of the other indicator, as there tion, using the standard criteria of validity and reliability are some minor differences between how the two indicators to identify indicators most salient to measuring Sustainable are constructed, and in practice it is difficult to establish a Development Goal 16. Consistent with the large literature priori which indicator is marginally more efficient. Further- in the field, the paper finds that the aggregate survey-based more, whenever possible, subjective indicators should be indicators of corruption, especially the Corruption Percep- cross checked with objective indicators, even when the latter tions Index and the World Bank’s Control of Corruption may be of a more narrow scope and time limited availability. 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They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team Can We Measure the Power of the Grabbing Hand? A Comparative Analysis of Different Indicators of Corruption 1 Alexander Hamilton2 with Craig Hammer3 JEL Codes: D72 D73 H11 Keywords: Governance Indicators; Anti‐Corruption; Public Sector Governance; Public Sector Performance Measurement; Sustainable Development Goals 1 This paper summarizes and adapts some of the key empirical findings emanating from Alexander Hamilton’s doctoral thesis undertaken at the University of Oxford (2008-2012). The completion of this work would not have been possible without the professional and personal support received from the following: my supervisors, Raymond Duch, Indridi Indridason, and Desmond King; my examiners Pablo Beramendi, David Soskice, and Jane Green as well as the funding provided by the ESRC. Invaluable feedback was also provided by Cristina Corduneanu-Huci, Varvara Lalioti, the participants of Nuffield College’s GRIPS Workshop and a seminar at the World Bank in Washington, DC. 2 Department for International Development, 22 Whitehall, London, SW1A 2EG. UK Comments and feedback on this paper are welcome:. [email protected]. 3 The World Bank, 1818 H St NW, Washington, DC 20433, USA. The role of corruption, the abuse of public office for private gain, in limiting human development is now well established. However, the ability to measure changes in corruption over time and across countries, in a valid and reliable manner, remains a contested issue. This is despite the proliferation of indicators purporting to do just that. The overarching concern of this paper is to critically evaluate the different measures or indicators of corruption that might logically be used to inform policy makers about changes in corruption across countries and over time. This evaluation is used in determining whether it is possible to associate changes in anti-corruption efforts/institutional features that may incentivize more or less corruption (independent variable of interest) to variations in reported or perceived corruption (dependent variable of interest). The paper achieves this objective by critically reviewing the strengths and weaknesses of different objective and subjective indicators of corruption, in order to identify appropriate indicators. This objective is achieved by using the standard criteria of validity and reliability in order to discriminate between these potential indicators. This is an important exercise because the new Sustainable Development Goals are explicitly committed to measuring aspects of corruption over time, and therefore identifying robust indicators to do so will be critical to realizing this endeavor. More specifically, this paper critically reviews the validity, consistency, and substantive focus of the following indicators of corruption: (1) the Corruption Perceptions Index (CPI); (2) the Control of Corruption Governance Metric (CC); (3) the Government Effectiveness Governance Metric (GE); (4) the Global Corruption Barometer; (5) the UN Survey of Crime Trends; and (6) evidence on the propensity of diplomats from different countries to break the law (hereafter ‘Tickets’). The paper finds, consistent with the large literature in the field, that the aggregate survey-based indicators of corruption, especially the CPI and the CC, despite some important reservations and limitations, are the most valid measures of the magnitude of overall corruption in many country contexts. In every case, though, initial results using one indicator should be cross checked with the use of the other indicator, as there are some minor differences between how the two indicators are constructed, and in practice it is difficult to establish, a priori, which indicator is marginally more efficient. Furthermore, despite a narrower focus, because comparative information on the tickets data is also available, it is also possible to cross check the results of these subjective 2 indicators with this objective (but more restricted) measure of objective cross-national corruption (albeit at only limited points in time). The paper proceeds as follows: the next section, Section I, is a discussion of the main strengths and weaknesses, in terms of validity and reliability, of using the subjective-based versus the objective-based indicators of corruption to measure the dependent variable of interest (variation in actual corruption across time and countries). Section II is concerned with reviewing, in detail, the five major indicators of corruption, which have to a significant extent been found to be valid and reliable measures of this phenomenon. The paper concludes that the CPI and the CC are, broadly and with some caveats, good indicators for measuring variation in corruption in a valid and consistent manner. I. Measuring Corruption: The Costs and Benefits of Using Survey‐Based Indicators In order to operationalize and use corruption indicators, it is necessary to identify a valid and reliable measure of corruption. That is, to identify a dependent variable of interest that has the following characteristics: (1) it is substantively focused on measuring corruption (validity criterion); and (2) it consistently measures this outcome across national contexts and/or across time (consistency criterion). Broadly, attempts to measure corruption can be divided into two major categories: (1) objective indicators – which use ‘real’ data (costs, materials used, etc.) to calculate the magnitude of waste and abuse in public works and/or services; and (2) subjective indicators – which use survey data (of experts/elites/the public) to try and measure the perceptions and/or experience of corruption by different groups country specialists, business people, voters etc.). Given that the focus of this paper is on trying to account for variation in corruption in general rather than in one specific policy domain (e.g. infrastructure or procurement), it will now be shown that the composite subjective measures of corruption are the most appropriate sub-set of indicators for this purpose. This is because, despite being based on perceptions, the major subjective indicators are highly correlated with narrower objective indicators, as well as outcomes associated with corruption (trust in government etc.), making it difficult to argue that objective indicators enjoy a ‘validity-based’ comparative advantage. Furthermore, subjective 3 indicators also enjoy an advantage, in that: (1) they are focused on overall levels of corruption, rather than a narrow subset of activities (e.g. corruption associated with bridge building etc.); and (2) they are more readily available and reliable with respect to measuring cross-sectional variation in (perceived) corruption, thus enabling cross- sectional regression analysis