Measuring governance: what guidance for aid policy?

Does governance matter? This paper explores the role of governance in aid effectiveness, pointing to policy recommendations (specifically with regards to Irish Aid) on how aid policy should be linked to governance in developing countries. The authors emphasise that, while governance data can certainly help with management decisions, it should be used with care since it is based largely on perception and has significant margins of error.

The paper gives:

• a brief summary of the literature on the importance of governance for development and aid effectiveness
  
• a discussion the strengths and weaknesses of the two main sources of governance data - the World Bank’s Country Policy and Institutional Assessment (CPIA) and Kaufmann and Kraay’s six aggregate governance indicators
  
• how Irish Aid partner countries and other potential partners view governance assessment
  
• an exploration of how donors use this governance data to allocate aid

Some preliminary recommendations on how Irish Aid should engage in qualitative governance assessment include:

• governance assessments should be undertaken jointly by donors to avoid proliferation and unnecessary increases in transaction costs
  
• governance indicators should be shared between countries
  
• donor agencies need to ensure adequate central capacity to review and digest existing governance indices and qualitative assessments
  
• governance interventions need to be prioritised - with a possible focus on priority sectors, rather than at the national level - and politically feasible
  
• available governance indices may be used when selecting additional partner countries as well as aid modalities, however donors need sufficient capacity to interpret such indices and must be knowledgeable regarding their limitations