The Known Unknowns of Governance

Rodolphe Desbordes, Gary Koop

Research output: Working paperDiscussion paper

Abstract

Empirical researchers interested in how governance shapes various aspects of economic development frequently use the Worldwide Governance indicators (WGI). These variables come in the form of an estimate along with a standard error reflecting the uncertainty of this estimate. Existing empirical work simply uses the estimates as an explanatory variable and discards the information provided by the standard errors. In this paper, we argue that the appropriate practice should be to take into account the uncertainty around the WGI estimates through the use of multiple imputation. We investigate the importance of our proposed approach by revisiting in three applications the results of recently published studies. These applications cover the impact of governance on (i) capital flows; (ii) international trade; (iii) income levels around the world. We generally find that the estimated effects of governance are highly sensitive to the use of multiple imputation. We also show that model misspecification is a concern for the results of our reference studies. We conclude that the effects of governance are hard to establish once we take into account uncertainty around both the WGI estimates and the correct model specification.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-33
Number of pages34
Volume14
Publication statusPublished - 22 Jul 2014

Fingerprint

Governance
Uncertainty
Standard error
Multiple imputation
Model misspecification
Capital flows
Income level
Model specification
Economic development
Discards
International trade

Keywords

  • governance
  • multiple imputation

Cite this

Desbordes, R., & Koop, G. (2014). The Known Unknowns of Governance. (07 ed.) (pp. 1-33). Glasgow: University of Strathclyde.
Desbordes, Rodolphe ; Koop, Gary. / The Known Unknowns of Governance. 07. ed. Glasgow : University of Strathclyde, 2014. pp. 1-33
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Desbordes, R & Koop, G 2014 'The Known Unknowns of Governance' 07 edn, University of Strathclyde, Glasgow, pp. 1-33.

The Known Unknowns of Governance. / Desbordes, Rodolphe; Koop, Gary.

07. ed. Glasgow : University of Strathclyde, 2014. p. 1-33.

Research output: Working paperDiscussion paper

TY - UNPB

T1 - The Known Unknowns of Governance

AU - Desbordes, Rodolphe

AU - Koop, Gary

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PY - 2014/7/22

Y1 - 2014/7/22

N2 - Empirical researchers interested in how governance shapes various aspects of economic development frequently use the Worldwide Governance indicators (WGI). These variables come in the form of an estimate along with a standard error reflecting the uncertainty of this estimate. Existing empirical work simply uses the estimates as an explanatory variable and discards the information provided by the standard errors. In this paper, we argue that the appropriate practice should be to take into account the uncertainty around the WGI estimates through the use of multiple imputation. We investigate the importance of our proposed approach by revisiting in three applications the results of recently published studies. These applications cover the impact of governance on (i) capital flows; (ii) international trade; (iii) income levels around the world. We generally find that the estimated effects of governance are highly sensitive to the use of multiple imputation. We also show that model misspecification is a concern for the results of our reference studies. We conclude that the effects of governance are hard to establish once we take into account uncertainty around both the WGI estimates and the correct model specification.

AB - Empirical researchers interested in how governance shapes various aspects of economic development frequently use the Worldwide Governance indicators (WGI). These variables come in the form of an estimate along with a standard error reflecting the uncertainty of this estimate. Existing empirical work simply uses the estimates as an explanatory variable and discards the information provided by the standard errors. In this paper, we argue that the appropriate practice should be to take into account the uncertainty around the WGI estimates through the use of multiple imputation. We investigate the importance of our proposed approach by revisiting in three applications the results of recently published studies. These applications cover the impact of governance on (i) capital flows; (ii) international trade; (iii) income levels around the world. We generally find that the estimated effects of governance are highly sensitive to the use of multiple imputation. We also show that model misspecification is a concern for the results of our reference studies. We conclude that the effects of governance are hard to establish once we take into account uncertainty around both the WGI estimates and the correct model specification.

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Desbordes R, Koop G. The Known Unknowns of Governance. 07 ed. Glasgow: University of Strathclyde. 2014 Jul 22, p. 1-33.