Corruption Perceptions Index: Methods, Rankings & Economic Impact

Country comparisons serve many purposes: economic, political, social, educational, and so on. Many countries — and likely all developed countries — conduct country comparisons focused on international trade and overall national economic status. The collection of international economic data has been increasingly influenced by sophisticated strategy and technique, largely because national fiscal markets are globally linked and multinational corporations engage at high rates with foreign supply chain vendors (Podobnik, et al., 2008). Measures such as the gross domestic product (GDP), the consumer price index (PCPI), general government gross and net debt, and purchasing power parity (PPP) are all used to understand the economic status, monetary exchange, and other fiscal dynamics in different countries ("WEO," 2014).

Discourse among economists is strongly skewed toward ratios, curves, slopes, and derivatives — each carefully constructed to reveal patterns and trends that would not otherwise be accessible or interpretable ("WEO," 2014). Indeed, it is because the data are quantitative that they are so comparable; moreover, statistical procedures are used to weight differences that might inadvertently skew outcomes, and to calculate the relationships between various measures, such as the CPI and GDP (Shao, et al., 2007). For example, to accomplish surveillance of other countries, the World Economic Outlook (WEO) produces a country database containing data on each country's currency, the type of national account used, historical and latest data on national accounts, whether chain-weighted methodology is used, and historical and latest data on the consumer price index (CPI). The Consumer Price Index (CPI) is a term used by economists to reflect changing monthly data on "prices that urban consumers pay for a representative basket of goods and services" ("Bureau of Labor Statistics," 2014).

Another organization that uses country-based data is the Organization for Economic Co-operation and Development (OECD). The OECD is known for examining patterns related to international trade and business. Its mission is to "promote policies that will improve the economic and social well-being of people around the world" ("OECD," 2014). The OECD measures national productivity and the flow of global investment and trade, and additionally sets international standards on matters as disparate as agriculture, taxation, pension systems, and chemical safety.

From its policy experience and the country data it collects, the OECD designs and recommends policies that can improve quality of life. At the core of OECD work is "a shared commitment to market economies backed by democratic institutions and focused on the wellbeing of all citizens" ("OECD," 2014). Tandem objectives of OECD work include substantially making "life harder for the terrorists, tax dodgers, crooked businessmen and others whose actions undermine a fair and open society" ("OECD," 2014). To these ends, the OECD holds a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Each participating country agrees to treat foreign bribery as a crime for which individuals and enterprises are held responsible. The Convention is therefore instrumental in curbing the export of corruption globally, since roughly two-thirds of global exports and nearly 90 percent of foreign direct investment outflows are directly tied to the 41 signatory countries. To increase its influence and effectiveness, the OECD Working Group on Bribery conducts follow-up reviews of nine to ten countries annually.

While the OECD emphasizes fact-based policymaking and implementation, an organization known as Transparency International serves as an aggressive watchdog. Transparency International is one of many non-governmental organizations (NGOs) that monitor and publicize the performance of political groups and corporations. The particular type of performance that Transparency International focuses on is the level of corruption in countries and territories around the world. The instrument it uses to measure and communicate perceived levels of corruption is the Corruption Perceptions Index.

The Corruption Perceptions Index (CPI) 2013 measures the perceived levels of public sector corruption in 177 countries and territories ("Transparency International," 2014). It is important to take note of the word "perceived," as it holds considerable importance with respect to the data collection and analysis procedures used to generate the CPI. When the CPI was first developed, public opinion surveys were used to gather corruption data — this information was truly based on people's perception. Over years of application, the CPI drew on different sources, which made year-over-year comparisons difficult. However, the current CPI utilizes up to 12 institutional sources to build the case for each country, though most countries use far fewer data sources (see Table 2).

Currently, the institutions providing assessment or survey data include the African Development Bank, the Bertelsmann Foundation, the Economist Intelligence Unit, Freedom House, Global Insight, the International Institute for Management Development, the Political and Economic Risk Consultancy, Political Risk Services, the World Economic Forum, the World Bank, and the World Justice Project. These organizations, along with the specific survey or assessment each contributes, are listed below:

• Africa Development Bank — Country Policy and Institutional Assessments 2009 (AFDB 2009)
• Asian Development Bank — Country Performance Assessment Ratings 2009 (ADB 2009)
• Bertelsmann Foundation — Bertelsmann Transformation Index (BF 2009)
• Economist Intelligence Unit — Country Risk Service and Country Forecast 2009 (EIU 2010)
• Freedom House — Nations in Transit 2009 (FH 2010)
• Global Insights, formerly World Markets Research Centre — Country Risk Ratings 2009 (GI 2010)
• Institute for Management Development — World Competitiveness Report 2009 and 2010 (IMD 2009 and IMD 2010)
• Political and Economic Risk Consultancy, Hong Kong — Asian Intelligence 2009 and 2010 (PERC 2009 and PERC 2010)
• World Economic Forum — Global Competitiveness Report 2009 and 2010 (WEF 2009 and WEF 2010)
• World Bank — Country Policy and Institutional Assessments for IDA Countries (WB 2009) ("Transparency International," 2014)

Survey and assessment rigor has increased since the CPI was first introduced. The strength of the current aggregated index is that a more reliable and robust measure of a phenomenon is achieved when measures are taken from a combination of sources rather than from each source independently. Current CPI data are derived from performance assessments by analyst groups, from surveys of business people, or from standing assessments and reports. It is generally understood that the CPI must measure the perception of corruption, since it would not be possible to measure corruption in absolute terms — that is, to count discrete incidences of corrupt behavior. The section below entitled "How Is Data Collected and Analyzed?" provides a more detailed discussion with examples of the data sources used to determine country rankings.

The purpose of the Corruption Perceptions Index is to make transparent the undesirable behaviors integral to the economic, political, and social functioning of countries around the world. These behaviors include abuse of power, bribery, and secret dealings by officials and non-officials in positions that affect the capacity of societies to conduct business and administer government ("Transparency International," 2014).