Effective governance and state capacity are key to economic development

Despite billions spent on education, healthcare, and infrastructure, why do so many countries struggle to achieve meaningful development outcomes? Is it a matter of spending more—or spending better?

The World Bank Group has long acknowledged the critical role of governance in ensuring efficient public spending. This commitment gained prominence in 1996 when the late World Bank President Jim Wolfensohn talked about the "Cancer of Corruption." An emerging conversation among academics and policymakers today emphasizes that policy implementation is just as important as spending and policy design. To effectively improve implementation, it is essential to adopt a data-driven approach and identify the right indicators that can track progress, reveal bottlenecks, and guide timely course corrections.

To date, significant progress has been achieved in analyzing governance using data, including initiatives such as the Worldwide Governance Indicators (1996-), Enterprise Surveys (1996-), the Public Expenditure and Financial Accountability (PEFA, 2001-) program, the BOOST open budget portal (2010-), the Global Survey of Public Servants (2022), Business Ready (2024), and the new Country-Level Institutional Assessment and Review. Over time, this data collection has evolved. Instead of looking at governments as a uniform entity, data collection efforts have been focusing on studying the individual public institutions responsible for spending and implementing policies (see, for example, BOOST and PEFA). Ministries of health, education departments, and local government agencies all play a role in translating budgets into real-world services. When focusing on these bodies, it becomes clear that accountability, transparency, and public administration are key for effective organization.

To advance this conversation and put ideas into practice, the Institutions Global Department recently hosted a Conference on Public Institutions for Development, convening  policymakers and academics including Karthik Muralidharan who emphasized and laid out a clear agenda for public sector institutions reforms. Muralidharan argued that reforming public sector institutions and their ability to deliver to citizens has the potential to yield a return on investment 10 times greater than additional spending—a claim based on an extensive research on the personnel and institutions responsible for delivering education, welfare for farmers, childhood development interventions, and India’s rural employment guarantee.

Exactly where should reform efforts be focused? Muralidharan outlined  key areas for governments and policymakers: using technology and data to improve revenue collection, independently measuring data for target setting and evaluation, ensuring appropriate public pay structure, and considering regulation or contracting private sector service providers where the public sector is weak. 

These are all areas the Institutions and Governance experts at the World Bank work on to support client countries. Our efforts include developing new indicators to collect information on broad dimensions of governance as well as institutional-level details on expenditure, staffing, and procedures for assessing capacity at the institution level.

What information do we need to collect to push this agenda forward? To understand which reforms are effective, Rema Hanna highlighted the importance of conducting research in partnership with government public institutions. While a large body of academic research has relied on smaller-scale studies often implemented with NGOs or other private entities, collaborating with public institutions opens the possibility of learning about bundled interventions, the interaction between government actions and the private market, and how local context impacts policy outcomes. At the conference, experts presented granular research on improving the organization, transparency, and accountability of public institutions responsible for regulation and procurement, illustrating the potential of this type of work.

Around the world, public spending often falls short due to weak institutions, inadequate incentives, and insufficient accountability. But the opportunity to address these issues, particularly when armed with new data and cutting-edge research, can be impactful and lead to institutional changes that in turn lead to real public service improvements. Strengthening institutional capacity, then, may be one of the most effective strategies in development, and the Institutions Global Department is currently collecting the necessary data and evidence to make this possible.