A new index: Global incidents of corruption

1. A new index:Global incidents of corruption Davide Furceri (International Monetary Fund) Joint work with Hites Ahir and Chris Papageorgiou (both at the IMF) Conference on Corruption and Anti-corruption Policies Kyiv, Ukraine. July 4-5, 2019. Views expressed in this presentation and during the talk are those of the presenter and should not be ascribed to the IMF .

2. roadmap • Why do we need another index of corruption? • How do we construct the new index of corruption—CIGI? • Stylized facts • Reliability checks • Effect on the economy • What’s next?

3. continued interest from policymakers around the world in combating corruption. • “Substantially reduce corruption and bribery in all their forms”—Target 16.5 of SDGs. • From Goal 16 of Sustainable Development Goals (SDGs). Goal 16 is dedicated to promote peace, justice and strong institutions. • “there is a growing consensus among our members that corruption is a macro-critical issue in many countries.” • From a speech by Christine Lagarde—IMF’s Managing Director—on Addressing Corruption with Clarity, September 2017.

4. The IMF is actively tackling the issue of corruption in its day-to-day work.

5. There has also been substantial progress in measuring corruption. • “Corruption can and is being measured through a wide variety of innovative approaches. Given the imperfections of any individual approach, it is appropriate to rely on a wide variety of different indicators, both subjective and objective, individual as well as aggregate, cross-country as well as country-specific.” Kaufman, Kraay and Mastruzzi (2007). There are three types of corruption measures available: • Perceptions based: examples include: Corruption Perception Index (Transparency International) and Control of Corruption (World Bank). • Victimization surveys based: examples include: Global Corruption Barometer (Transparency International) and Enterprise survey (World Bank). • Big data and text mining based: examples include: News-Flow Index of Corruption, IPaidBribe.com, and procurement analysis.

6. However, the existing measures have limitations.

7. Our contribution • WHAT? • A quarterly index of corruption—Global Incidents of Corruption Index (GICI)—for 143 countries from 1996 onward (updated every quarter). • HOW? • The Global Incidents of Corruption Index (GICI) is computed by counting the frequency of the word “corrupt” and its variant in the country reports of the Economist Intelligence Unit. The GICI index is then normalized by total number of words in the report. A higher number means higher corruption and vice versa. • The index captures major corruption scandals/events, and discussion about corruption.

8. THE EIU country reports. • The country reports covers politics, economic policy, the domestic economy, foreign and trade payments events, and on their overall impact on the country risk and outlook. • EIU relies on a comprehensive network of experts that are based in the field, and country experts that are based at the headquarter. • Five-step process to ensure accuracy and consistency across countries: writing the report, editing, second check, sub-editing, and production.

9. Examples of how the country reports of the Economist Intelligence Unit look like.

10. A sample of extracts that mentions “corruption” in the report. • Mexico: “The president, Enrique Peña Nieto of the Partido RevolucionarioInstitucional (PRI), will focus the second half of his six-year term (which ends in 2018) on ensuring the successful implementation of the structural reforms that were passed in 2013-14. He must do this while confronting the fallout from numerous corruption and crime-related, involving both himself and his party.” • Kyrgyz Republic: “Temir Sariev resigned from the premiership in April, sparked by allegations of his involvement in corrupt practices. SooronbaiZheenbekov (SDPK) was swiftly appointed as his successor, boding well for policy continuity.”

11. gici VS. existing measures. • Advantages: • (i) the index capture actual scandals/events and discussion related to corruption, (ii) the index is available at a higher frequency, (iii) the index is updated on a more timely basis. • Disadvantages: • (i) only one source—not a huge amount of text, (ii) captures (macro-relevant) incidents.

12. Stylized Facts

13. corruption higher in low-income economies thAn in emerging and advanced economies.

14. higher in Africa, but there is significant heterogeneity within each region.

15. incidents have become more frequent in recent years.

16. Specially in emerging economies.

17. Reliability Checks and comparison with existing measures

18. Different versions of GICI Note: The Global Incidents of Corruption Index (GICI) is computed by counting the frequency of corruption in EIU country reports. The GICI is then normalized by total number of words and rescaled by multiplying by 1,000. Version 1 include the following keywords: corrupt. Version 2 include the following keywords: corrupt, kleptoc, nepotism, graft Version 3 include the following keywords: corrupt, kleptoc, nepotism, rent-seeking, bribe, graft, extortion, crony, scam

19. High correlation with existing measures

20. …as well as rank correlations.

21. The GICI tracks well and often anticipates changes in perceptions based measures. Formal tests show that lagged value of CIGI are associated contemporaneous values of perception-based measures but not vice versa.

22. And it exhibits more within-country variations than other measures. The high within-country variation of the indicator, allows the use of empirical analyses that can help to get closer to a causal interpretation of the effects of macroeconomic effects of corruption.

23. Gici is Correlated with structural indicators of competition.

24. And selected macroeconomic indicators.

25. Effect on Output

26. .01 0 -.01 -.02 0 5 10 15 step 90% CI Cumulative Orthogonalized IRF impulse : response The effect of gici on output. Note: VAR fit to quarterly data for a panel of 46 countries from 1996q1 to 2018q4. Impulse responses of GDP to a one-standard deviation increase in the GICI based on a Cholesky decomposition with the following order: the log of average stock return, the GICI and GDP growth. The specification includes four lags of all variables. Country and time fixed effects are included.

27. The effect of gici on output—robustness checks. Note: VAR fit to quarterly data for a panel of 46 countries from 1996q1 to 2018q4. Impulse responses of GDP to a one-standard deviation increase in the GICI based on a Cholesky decomposition with the following order: the log of average stock return, the GICI and GDP growth. The specification includes four lags of all variables. Country and time fixed effects are included.

28. Comparing with other measures.

29. Next Steps

30. Ongoing work on the index • Extend the series back in time to the early 1950s. • Classify types of corruption (public vs. private) and anti-corruption measures. • Additional empirical analysis.

31. Historical gici for Nigeria: 1953 to 2018

32. conclusion • There is a continued interest from policymakers around the world in combating corruption. One of the areas in tackling corruption, involves measuring corruption. However, existing measures have some limitations. • We construct a new index—Global Incidents of Corruption Index (GICI)—by counting the frequency of the word “corrupt” and its variant in country specific reports prepared by the Economist Intelligence Unit. The index performs well when comparing with existing measures. • We believe that the GICI index helps validate perceptions and surveys based data. It is also important to rely on a range of measures to assess governance and recognizing no single measure is a perfect proxy for governance.