Essay on "CPI and Global Economy"

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[EXCERPT] . . . .

The obvious conclusions to be drawn from this information is that global corruption is a serious problem, and that changing these normative societal states will be an enormous challenge. For those disinclined to agree with this conclusion, it is worthwhile to examine the findings from a number of economic research studies conducted in 2007 and 2008 that explicitly considered the consequences of corruption perception -- as determined by the CPI.

Research conducted by Shoa, et al. (2007) found a strong correlation between long-term economic growth at higher levels and a better corruption perception score as shown on the CPI. Podobnik, et al. (2008) showed that for every unit that a country's CPI score raised, there was a corresponding 1.7% increase in GDP growth. This relationship is apparent even through a visual inspection of the data, showing that the wealth of a country maps consistently to its corruption, with the one most notable exception of China.

Welhelm (2002) found that there was a power-law dependence linking higher rates of foreign investment in a country and higher CPI scores. The simplest way to think about the power-law construct is to recall the Pareto distribution: this is commonly known as the 80-20 rule, a distribution applied to any convenient purpose by business people (Newman, 2006). The figure below illustrates the frequency of some action on the Y-axis while the X-axis represents the number of individuals in the population.

Figure 1. Example Parieto Chart or the 80-20 Rule

Those who have read The Black Swan by Nicholas Taleb will recognize the depiction of the long tail, and what it can mean to prediction mo

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dels. By extension, on the topic of corruption, the X-axis would represent countries, and the Y-axis would represent the perception (of corruption incidence). This model only holds, however, as with all power-law dependencies, for limited numbers (Newman, 2006). That is to say that, in examining a map showing the number of countries that are considered to have high levels of corruption, only those countries with the worse levels of corruption on the CPI would appear at the intersection nearest zero (lower left) in the figure above. For illustration, the 80-20 rule is an explanation used for trouble shooting quality problems or personnel problems or client loyalty, such that 80% of the quality problems (labor strikes, annual sales) are caused by 20% of the technology components (dissatisfied employees, returning buyers) (Newman, 2006).

Wilhelm (2002) conducted a study to validate the measures used to gauge and report levels of global corruption. Wilhelm (2002) found a "very strong significant correlation of three measures of corruption," a finding that indicates validity. The three measures were: 1) black market activity; 2) country scores of the Corruption Perceptions Index (CPI); and, 3) the overabundance of regulation or unnecessary restriction of business activity. Moreover, "a highly significant correlation" was found between these three measures and gross domestic product per capita (RGDP/Cap). Notably, when testing the correlation with the RGDP/Cap, the CPI accounted for more than 75% of the variance. The study of corruption in relation to business is not an empty exercise: corruption appears to actually deter country development and economic growth. Indeed, "Sustainable economic development appears very dependent on a constant, virtuous cycle that includes corruption fighting, and the maintenance of trust and innovation, all reinforcing each other" (Wilhelm, 2002). The Corruption Perception Index interactive world map illustrates macro level changes in the status of the countries, and primarily of the inclusion of countries in the CPI assessment (http://edutube.org/interactive/corruption-perception-index-cpi-interactive-world-map).

How Is Data Collected and Analyzed?

The nature of corruption severely limits accurate assessment, as pointed out by Alex Cobham in a 2013 opinion piece in Foreign Policy, who states that, "Perceptions are not facts, and in this case [the Index] they may also be an unhelpfully distorted reflection of the truth" (Cobham, 2013). Cobham simply expressed an opinion and did not offer any facts either, which -- since this is what he criticized CPI of routinely doing -- did not add any credibility to his comments. The level of Cobham's "analysis" can be sufficiently met with a counterargument comments such as, "Where there's smoke, there's fire."

It is true that absolute levels of corruption are hidden and not easily discernible. Corrupt illegal activities are concealed at all levels by the actors who engage in corruption ("Transparency International," 2014). Like the proverbial tip-of-the-iceberg, when investigations, prosecutions, or scandals propel corrupt activities into the light, some measure of corruption is presumed -- but it may be erroneous in either direction. Data based on prosecutions or investigations do not accurately represent the incidence or proclivity toward corruption in a society ("Transparency International," 2014). Rather such data illustrates the effectiveness of the police, prosecutors, courts, and the media with respect to their capacity for dredging up evidence of corruption, and it represents the tacit agreements and social contracts that are normative in the culture ("Transparency International," 2014). There is general agreement that the perceptions of corruption by people in a position to assess the public sector provide "the most reliable method of comparing relative corruption levels across countries" ("Transparency International," 2014).

The discussion in the following paragraphs addresses the data collection and analysis process from a top-to-bottom tact, first examining the 12 institutions that provide the 13 data sources, then considering the types of information that are obtained and, finally, exploring the actual questions or topics covered at the survey or assessment level.

Scores to develop the Corruption Perceptions Index are taken from any of 13 sources shown in the table below (Saisana & Saltelli, 2012, p. 8). Countries that have been evaluated by three sources or more can be included in the index (Saisana & Saltelli, 2012, p. 8). For the 2012 Corruption Perception Index, the highest number of sources attributed to any one country was ten (i.e., Czech Republic, Hungary, India, Poland, South Korea) (Saisana & Saltelli, 2012, p. 8). Seven to eight sources were used to evaluate most of the countries in the 2012 CPI, with 19 countries evaluated by data from only two sources (Saisana & Saltelli, 2012, p. 8). With so many different data sources and unique scales being used to obtain the data, a process of rescaling takes place in order to make comparisons possible. The process, which is similar meta-analysis data preparation processes, is detailed in Appendix III - Calculation Steps for the CPI Index Scores.

Table 2 shows the institutions that are currently participating in the CPI, with the number of countries that utilize the data from the institutions listed at the end of each row.

Table 2. 2012 CPI Sources of Information

Source Number of countries

1. African Development Bank Governance Ratings (AFDB) 53

2. Bertelsmann Foundation Sustainable Governance Indicators (BF-SGI) 31

3. Bertelsmann Foundation Transformation Index (BF-BTI) 128

4. Economist Intelligence Unit Country Risk Ratings (EIU) 138

5. Freedom House Nations in Transit (FH) 29

6. Global Insight Country Risk Ratings (GI) 175

7. IMD World Competitiveness Yearbook (IMD) 59

8. Political and Economic Risk Consultancy Asian Intelligence (PERC) 16

9. Political Risk Services International Country Risk Guide (ICRG) 140

10. Transparency International Bribe Payers Survey (TI) 29

11. World Bank, Country Performance and Institutional Assessment (WB) 67

12. World Economic Forum Executive Opinion Survey (WEF) 147

13. World Justice Project Rule of Law Index (WJP) 97

Source: Corruption Perceptions Index 2012

Two different types of sources are used in the CPI: Opinion surveys and analysts assessments. The opinion surveys are completed by business people. When more than one year of the same version of a survey is available, the data from the last two years are included in the data set. This results in data smoothing, which avoids abrupt changes, which would make the index less stable. The analysts' assessments are scores related to the performance of a country, and risk analysts, country analysts, and other expert analysts provide the assessments.

The CPI uses the panel of experts on the Economist Intelligence Unit - Country Risk Service and Country Forecast 2010 (EIU 2010) to provide an assessment on corruption. The EIU panel of experts assesses the incidence of corruption, and it defines corruption as the misuse of public office for personal (or party political) financial gain. Responses are indicated on a 4-point Likert scale from "0" (that denotes a "very low" incidence of corruption) to "4" (that denotes a "very high" incidence). The various aspects that the experts on the EIU panel are asked to consider include:

"Existence of clear procedures and accountability governing the allocation and use of public funds, public funds misappropriation by ministers/public officials for private or party political purposes; existence of special funds for which there is no accountability; general abuses of public resources; existence of a professional civil service; existence of an independent body auditing the management of the public finances; existence of an independent judiciary with the power to try ministers/public officials for abuses; and payment of bribes to secure contracts and… READ MORE

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Quantification and Social Thought Final Paper

Course Description: In an age of “big data,” “sabermetrics,” and “evidence-based medicine,” statistical concepts and mathematical models for decision-making have become ever more common in the modern world. Although proponents would argue that these new methods are increasingly powerful, their use raises complicated questions about how decisions can and should be made, in realms from drafting a baseball player to measuring the effectiveness of a federal program. This course examines the history of quantification from the Enlightenment to the present, with special attention to the ways new technologies and methodologies intersect with changing notions of rationality and causality.

Course Objectives: This course develops the skill of critically engaging with political and social theories as well as with scientific models of mind and behavior; it promotes depth of knowledge in history of science; and cultivates writing and communication skills. Ultimately, the goal is to develop thoughtful analytic methods for understanding and making claims about the world. Final Paper: Expand on the previous paper you wrote (accordingly to the professor's notes on the previous draft). Should be 15 pages.

Below are the professor's notes (I will also attach a word file with further notes on the paper): I think the main thing you need to do to improve your analysis is figure out more specifics of the data: is the score absolute or relative? Do they publish how they compute their scores explicitly (thus enabling countries to 'game' the system)? Also, I wondered about the fact that, with at least the exception of China, the wealth of a country seems to map fairly consistently onto its corruption. What did you make of this? Do they talk about this? Is there any sense of change over time?

PLEASE MAKE SURE YOU PAY CLOSE ATTENTION TO MY PROF.'S NOTES...THANKS!

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