Governance and the City:

Governance and the City: Global Determinants of Urban Performance and Implications from an International Perspective Daniel Kaufmann, Frannie Léautier & Massimo Mastruzzi The World Bank Institute http://worldbank.org/wbi/governance/ Background Handout for Presentation at the MPA/DPA Alumni Conference, to be held at the University of Western Ontario, London, Ontario, Canada, November 5 th, 2004

Serious Context (beyond trivia) Increasing urbanization in the face of globalization Importance of the role of cities and change in the composition of city size City-to-city networks growing: flows of trade, migration, finance and also city-city dialogue Debate: city as a place, or city as an outcome Increased attention on the issue of governance

Key Questions we address from worldwide perspective Variation and Interactions: Are there large differences in city-level performance, governance, and globalization, and do the differences matter? Globalization Globalization: Does globalization at city and country level matter for sound governance? Governance: Governance: Does sound governance at the city level affect city performance? Size and Technology: They matter for performance? Empirics: Empirics: Does the data on cities at our disposal permit an exploration of these questions?

Hypotheses Hypothesis 1: Governance Matters Hypothesis 2: Globalization Matters Hypothesis 3: Globalization & Governance interact positively Bottom Line: Governance, Globalization and Access to Services: key for City Life Quality Technology and Size also Matter? -- Complex

City governance and extent of globalization as potential determinants of city performance High Performance Quality of City Governance Well Governed Local City I Poorly Governed Local City II Well Governed Global City IV Poorly Governed Global City III Low Performance Extent of City Globalization

The Data: Indicators Country Level Indicators: we use the we use the Control of Corruption from the Worldwide Aggregate Governance Indicators; income per capita variable from Heston- Summers; for globalization at the country level, we draw from the A.T. Kearney/Foreign Policy City Level Indicators, 1: constructed through internet searches for city population, existence of city website; availability of data on budget and business regulations in such websites, & dummies for whether the city is the country s s capital and/or a port

City Level Data, 2: Main Sources KLM database: : integrates existing & newly collected data, covering 412 cities in 134 countries. Specifically: UN Observatory (1998): 4 service access/performance variables, covering about 80 cities in 60 countries; EOS survey database (2003) from WEF: construct city-specific averages for 12 governance indicators and 5 service performance variables, covering 271 cities in 101 countries; Taylor database: : Number of offices of major advertising, accounting and financial firms in each city and we construct a global city variable, for 261 cities in 114 countries. Mercer Database: : City Quality of Life (2002).( Evaluation of quality of life in 215 cities. Based on evaluations of 39 key quality of life determinants, grouped in these categories: Political/Social; Economic; Socio-cultural; Health; Schools; Public services; Recreation; Consumer goods; Housing, & Environment. NY=100

Main Empirical Variables and Data Sources Coverage Variable Description / Source Range / direction Country Cities City Variables Access to Water UN Observatory, 1998 % 61 83 Access to Sewerage UN Observatory, 1998 % 57 78 Access to Electricity UN Observatory, 1998 % 61 81 Access to Telephone Lines 1 UN Observatory, 1998 % 51 58 Access to Telephone Lines 2 EOS, 2003 1 (bad) - 7 (good) 101 271 Quality of Infrastructure EOS, 2003 1 (bad) - 7 (good) 101 271 Quality of Electricity EOS, 2003 1 (bad) - 7 (good) 101 271 Access to Cell Phones EOS, 2003 1 (bad) - 7 (good) 101 271 Access to Internet in schools EOS, 2003 1 (bad) - 7 (good) 101 271 Bribery in Utility EOS, 2003 1 (bad) - 7 (good) 101 271 State Capture EOS, 2003 1 (bad) - 7 (good) 101 271 Informal Money Laundering EOS, 2003 1 (bad) - 7 (good) 101 271 Street Crime EOS, 2003 1 (bad) - 7 (good) 101 271 Red Tape Cost of Imports EOS, 2003 1 (good) - 9 (bad) 101 271 Bribery to Affect Laws EOS, 2003 1 (bad) - 7 (good) 101 271 Diversion Public Funds EOS, 2003 1 (bad) - 7 (good) 101 271 Illegal Party Financing EOS, 2003 1 (bad) - 7 (good) 101 271 Bribery in Permits EOS, 2003 1 (bad) - 7 (good) 101 271 Bribery in Tax EOS, 2003 1 (bad) - 7 (good) 101 271 Soundness of Banks EOS, 2003 1 (bad) - 7 (good) 101 271 Trust in Politicians EOS, 2003 1 (bad) - 7 (good) 101 271 Organized Crime EOS, 2003 1 (bad) - 7 (good) 101 271 Quality of Postal System EOS, 2003 1 (bad) - 7 (good) 101 271 Health Access Gap EOS, 2003 1 (bad) - 7 (good) 101 271 Global City City Population Offices of major advertising, financial & accounting firms (Taylor 2000) Source: www.citypopulation.de, 2001 Hundreds 114 261 Logs 134 410 Website Dummy City has a website (KLM 2003) 0-1 (yes) 133 398 Business Dummy City website has info on how to start a business (KLM 2003) 0-1 (yes) 133 398 Budget Dummy Port Dummy City website has info on city budget (KLM 2003) City has port facilities (KLM 2003) 0-1 (yes) 133 398 0-1 (yes) 134 411 Capital Dummy City is the capital (KLM 2003) 0-1 (yes) 134 411 Country Variables Globalization (Kearney) Journal of Foreign Policy, 2002 0 (close) - 1 (open) 59 254 Control of Corruption Governance Indicator, KK 2002-2.5 (bad) / 2.5 (good) 134 411 Country Population WDI 2003 Logs 134 411 Urbanization Income per Capita % people not in agriculture (WDI 2002) Heston-Summers and CIA World Factbook, 2001 % 100 366 Logs 134 411

Governance: A working definition Governance is the process and institutions by which authority in a country is exercised: (1) the process by which governments are selected, held accountable, monitored, and replaced; (2) the capacity of gov t to manage resources and provide services efficiently, and to formulate and implement sound policies and regulations; and, (3) the respect for the institutions that govern economic and social interactions among them

Operationalizing Governance: Unbundling its Definition into Components that can be measured, analyzed, and worked on Each of the 3 main components of Governance Definition is unbundled into 2 subcomponents: Democratic Voice and (External) Accountability Political Instability, Violence/Crime & Terror Regulatory Burden Government Effectiveness Corruption Rule of Law We measure these six governance components

Sources of Governance Data Data on governance from 25 different sources constructed by 18 different organizations Data sources include cross-country surveys of firms, commercial risk-rating agencies, think-tanks, government agencies, international organizations, etc.) Over 200 proxies for various dimensions of governance Organize these measures into six clusters corresponding to definition of governance, for four periods: 1996, 1998, 2000, and 2002, covering up to 199 countries

Sources of Governance Data Cross-Country Surveys of Firms: Global Competitiveness Survey, World Business Environment Survey, World Competitiveness Yearbook, BEEPS Cross-Country Surveys of Individuals: Gallup International, Latinobarometro, Afrobarometer Expert Assessments from Commercial Risk Rating Agencies: DRI, PRS, EIU, World Markets Online, Expert Assessments from NGOs, Think Tanks: Reporters Without Borders, Heritage Foundation, Freedom House, Amnesty International Expert Assessments from Governments, Multilaterals: World Bank CPIA, EBRD, State Dept. Human Rights Report

Governance Indicators: Canada, 1996/2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Control of Corruption Selected Countries, 1996/2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Government Effectiveness Selected Countries, 1996/2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Level of City Globalization, Selected Cities 600 Level of City Globalization 15 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Y-axis measures (in logs) the sum of offices of accounting, advertising, financial and legal institutions in each city. Drawn from Taylor 2001. Total Sample: 260 cities.

Ease of Starting Business, Selected Cities % Firms Rating Satisfactory (5, 6, 7) 100 Ease of Starting Business 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Buenos Aires Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Gaborone Source: EOS 2003. Question: Starting a new business in your country is generally difficult / easy. Total Sample: 271 cities.

Bribery in Utilities, Selected Cities % Firms Reporting High Corruption (1, 2, 3) 100 Bribery in Utilities 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Gaborone Source: EOS 2003. Question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with Utilities. Total Sample: 271 cities.

Bribery in Procurement, Selected Cities % Firms Reporting High Corruption (1, 2, 3) 100 Bribery in Procurement 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Gaborone Source: EOS 2003. Question: In your industry, how commonly would you estimate that firms make undocumented extra payments or bribes connected with Procurement. Total Sample: 271 cities.

Quality of Electricity Supply, Selected Cities % Firms Rating Satisfactory (5, 6, 7) 100 Quality of Electricity Supply 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Gaborone Source: EOS 2003. Question: The quality of electricity supply in your country is among the world s worst / best. Total Sample: 271 cities.

Quality of Infrastructure, Selected Cities % Firms Rating Satisfactory (5, 6, 7) 100 Quality of Infrastructure 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Gaborone Source: EOS 2003. Question: General infrastructure in your country is poorly developed / among the world s best. Total Sample: 271 cities.

Percentile Rank 100 Quality of Life Index, Selected Cities Quality of Life Index 80 60 40 20 0 Montreal Ottawa Toronto Paris Zurich New York Madrid Barcelona Santiago Singapore Budapest Athens Mexico City Sao Paulo Moscow Mumbai New Delhi Nairobi Lagos Source: Mercier, 2003. Total Sample: 215 cities. Mercier s survey provides an evaluation of quality of life in 215 cities. The study is based on detailed assessments and evaluations of 39 key quality of life determinants, grouped in the following categories: Political and social environment; Economic environment; Socio-cultural environment; Medical and health considerations; Schools and education; Public services and transportation; Recreation; Consumer goods; Housing, and Natural environment. Quality of Life Index: New York City = 100 (Highest: Zurich, Lowest: Brazzaville);

Testing Hypothesis 1: Governance Matters Approach: Approach: Compare city performance for local and global cities across different indicators of governance City Performance Indicators: access to telephone lines, sewerage network, water system, electricity grid, quality of infrastructure, quality of electricity services, access to cell phones, access to internet Governance Indicators: bribery in utility, state capture, country control of corruption

Testing Hypothesis 2: Globalization Matters Approach: Approach: Compare city performance against different levels of city globalization and country globalization Globalization Indicators: global city (Taylor definition), country globalization (Kearney Globalization Index) City Performance Indicators: access to telephone lines, sewerage network, water system, electricity grid, quality of infrastructure, quality of electricity services, access to cell phones, access to internet

Figure 1b Access to Sewerage, City Governance and Globalization Non OECD Sample 100% Poor Governance Good Governance Global City Access to Sewerage (%) Local City 20% Control of Corruption Bribery in Utility State Capture Sources: EOS 2003, UN 1998, KK 2002 & KLM 2004 Control of Corruption Bribery in Utility State Capture

High 7 Figure 1g Access to Cell Phones, City Governance and Globalization Non OECD Sample Poor Governance Good Governance Local City Global City Access to Cell Phones Low 4 1 Control of Corruption Bribery in Utility State Capture Control of Corruption Sources: EOS 2003, KK 2002 & KLM 2004 Bribery in Utility State Capture

High Low Access to Internet in Schools Figure 1h Access to Internet in Schools, City Governance and Globalization Non OECD Sample 7 4 Poor Governance Good Governance Local City Global City 1 Control of Corruption Bribery in Utility State Capture Control of Corruption Sources: EOS 2003, KK 2002 & KLM 2004 Bribery in Utility State Capture

High 7 Figure 1e Quality of Infrastructure, City Governance and Globalization Non OECD Sample Poor Governance Good Governance Global City Quality of Infrastructure Low 4 Local City 1 Control of Corruption Bribery in Utility State Capture Control of Corruption Bribery in Utility State Capture Sources: EOS 2003, KK 2002 & KLM 2004

Testing Hypothesis 3: Globalization and Governance Approach: Interact Positively Approach: Compare city governance to globalization, urbanization, and city characteristics Globalization Indicators: country globalization (Kearney Globalization Index) Governance Indicators: low illegal party financing, low diversion of public funds, effectiveness/trust in postal system, low health access gap, low bribery in taxes, low bribery in utilities low, medium, high Globalization Indicators: Governance Indicators: Urbanization Indicators: low, medium, high City Characteristics: city to country size ratio, city population, capital city dummy

Figure 2a: City Governance and Globalization High Governance 7 Low Illegal Party Financing Low Diversion of Public Funds Quality of Postal System 4 Low 1 Low Globalization Medium globalization High globalization Source: EOS, 2003

Figure 2b: City Governance and Urbanization City Governance 7 Low Health Access Gap Low Bribery in Taxes Low bribery in Utilities 4 Low 1 Low Urbanization Medium Urbanization High Urbanization Source: EOS, 2003

7 Good Figure 2c: City Governance and City Characteristics Low Bribery to affect laws, regulations Low Diversion of Public Funds City/country Size Ratio City Population Low Organized Crime Capital City 4 1 Poor Low ratio High ratio Low Population High Population Not a capital Capital Source: EOS, 2003

100% City Population vs. City Performance Non OECD Sample Access to Services 65% Access to Sewerage (%, UN) Access to Water (%, UN) Access to Telephone lines (%, UN) 30% Small <.5m. Midsize.5<p<1m. Large 1<p<5m. Mega >5m. Sources: UN 1998 & KLM 2004 City Population

Testing Bottom Line What matters for City s Quality of Life? We use the Mercer Index against the other variables in our research

Quality of Life vs. Corruption at the City Level 120 Good Quality of Life 70 r = 0.85 Poor 20 1 Poor Control 4 Good Control 7 Control of Bribery in Utilities Sources: Bribery in Utilities: EOS 2003, 271 cities (from KLM database); Quality of Life: Mercer 2002, 215 cities. Mercer s survey provides an evaluation of quality of life in 215 cities. The study is based on detailed assessments and evaluations of 39 key quality of life determinants, grouped in the following categories: Political and social environment; Economic environment; Socio-cultural environment; Medical and health considerations; Schools and education; Public services and transportation; Recreation; Consumer goods; Housing, and Natural environment. Quality of Life Index: New York City = 100 (Highest: Zurich, Lowest: Brazzaville); Sample city overlap: 116.

Quality of Life vs. City Globalization 120 Good r = 0.77 Quality of Life 70 Poor 20 Low High 0 2 3 City Globalization Sources: City Globalization: Taylor 2001, 261 cities (from KLM database); Quality of Life: Mercer 2002, 215 cities. Mercer s survey provides an evaluation of quality of life in 215 cities. The study is based on detailed assessments and evaluations of 39 key quality of life determinants, grouped in the following categories: Political and social environment; Economic environment; Socio-cultural environment; Medical and health considerations; Schools and education; Public services and transportation; Recreation; Consumer goods; Housing, and Natural environment. Quality of Life Index: New York City = 100 (Highest: Zurich, Lowest: Brazzaville); Sample city overlap: 162.

Quality of Life vs. Quality of Electricity Supply 120 Good r = 0.89 Quality of Life 70 Poor 20 1 Poor 4 Good7 Quality of Electricity Supply Sources: Quality of Electricity Supply: EOS 2003, 271 cities (from KLM database); Quality of Life: Mercer 2002, 215 cities. Mercer s survey provides an evaluation of quality of life in 215 cities. The study is bas ed on detailed assessments and evaluations of 39 key quality of life determinants, grouped in the following categories: Political and social environment; Economic environment; Socio -cultural environment; Medical and health considerations; Schools and education; Public services and transportation; Recre ation; Consumer goods; Housing, and Natural environment. Quality of Life Index: New York City = 100 (Highest: Zurich, Lowest: Brazzaville); Sample city overlap: 116.

Some Conclusions Country Vs. City: Good governance and globalization at both country and city level matter Twin Forces: Dynamic pressures of globalization and accountability result in better city performance Voice and Choice: Particular and complex interactions between technology choices, governance, and city performance City Characteristics: Non-linear (U-Shaped) relationship between city size and performance, agglomeration economies City as a Place or as an Outcome: evidence to bridge competing strands in the literature City s s Quality of Life: More More Globalized,, Less Corrupt and Better Access to Services Matter

Policy Implications Importance of country-wide governance Levers at city level for reformist leaders: local measures to improve governance, control corruption, and become global city do matter Supporting cities in globalization process (technology, associations) Role of new technologies and public/private interface Potential role of economies of agglomeration: Mega- cities do not necessarily underperform

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