What are the halo effects and what impact do they have upon the strong positive correlation between governance and income?
Perceptions-based measures of governance such as the ones we develop are potentially subject to a number of biases. One common critique is that perceptions of governance are biased upwards in rich countries because respondents view the development success of the country in question as evidence that institutional quality is good. This type of bias is sometimes referred to as a “halo effect”, and some observers have argued that such “halo effects” might be significantly responsible for the highly positive correlation between income and governance Yet, as described in the Governance Matters IV paper (pages 32-36), we argue that such halo effects would need to be implausibly large to account for cross-country correlations between governance and incomes.
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