Governance encompasses the formal and informal institutions, norms, and structures that determine the processes through which public authority is exercised. This includes the mechanisms for selecting, monitoring, and replacing those in power; the capacity of governments to formulate and implement sound policies; and the extent to which citizens and public officials respect and adhere to the rules that govern economic and social interactions.
Government corruption can infect all parts of an economy and its accurate measurement in systematic ways. Often a direct result of the government’s concentration of economic or political power, corruption manifests itself in many forms such as bribery, extortion, nepotism, patronage, embezzlement, and graft.
For example, excessive and redundant government regulations provide opportunities for bribery or graft. In addition, government regulations or restrictions in one area may create informal markets in another. As a result, governance and the informal economy are often correlated.
The World Economics Governance Index is constructed by combining four distinct component indices into a single composite measure. These components are: Corruption Levels, Rule of Law, Press Freedom, and Political Rights. Each of these four dimensions captures a critical aspect of governance and is integrated to form a comprehensive assessment of a country’s overall governance quality. By aggregating these distinct but complementary indicators, the composite index provides a multidimensional evaluation that reflects the integrity of public institutions, the effectiveness of legal frameworks, the independence of the media, and the extent of political freedoms. This approach ensures that the resulting measure encompasses the primary institutional and normative elements that define the quality of governance within a country.
The World Economics Governance Index is constructed from four principal component indices, each representing a distinct but complementary dimension of governance:
Each of the four component indices is first transformed into standardized z-scores to facilitate comparability across the disparate scales and distributional properties of the source data. This standardization process involves subtracting the global mean of each component index from the country’s raw score and dividing the result by the global standard deviation, thereby expressing each country’s performance as a standardised deviation from the cross-country mean.
The standardised z-scores for the four component indices are then combined into a composite Governance Index using a simple unweighted average. This approach assigns equal weight to each of the four dimensions, reflecting the view that no single component is comprehensively substitutable for the others in evaluating overall governance quality.
The resulting composite index is rescaled to a uniform 0–100 range, where higher scores indicate stronger governance and lower scores indicate weaker governance. This scaling convention enables consistent comparisons of governance performance across countries and over time.
Countries are assigned summary ratings of A through E based on their composite index scores using a bell curve grading approach. Rather than dividing all countries into five equal groups, the rating boundaries are determined by the spread of scores as measured by the standard deviation. This method sets the boundaries between grades based on how far a country’s score deviates from the average score across all countries. Countries with scores significantly above the average are assigned higher grades, while those with scores substantially below the average receive lower grades.
This approach ensures that the grade boundaries reflect the actual distribution and spread of scores rather than forcing an equal number of countries into each rating category. As a result, the ratings distinguish countries based on the extent to which their performance deviates from the average, providing a more meaningful differentiation between levels of governance performance.
The rating categories are defined as follows:
The methodology creates rating categories that correspond to the natural distribution of governance performance across countries. This ensures that grades are awarded based on relative performance within the actual spread of scores, rather than distributing countries evenly across predefined categories regardless of the underlying variation in their performance.