The updated report of 209 countries shows that in spite of improvements in governance in some countries, it deteriorated in others.

Across the globe, analysts and policy-makers agree that better governance - how governments deal with corruption, rule of law, bureaucracy and human rights - raises living standards for people in developing countries.

"Although a number of countries have improved rapidly in recent times, too often there has been inaction, and leaders face the challenge of setting clear targets of good governance standards and tracking their progress," the report said.

Donors and investors have increasingly demanded better monitoring of governance as a way of rewarding well-run countries that promote sound economic policies and respect rule of law with aid and investment.

Performance indicators

The United States's Millennium Challenge Account, the Bush administration's flagship foreign aid programme unveiled in 2002, allocates aid to needy countries based on how they are governed and promote economic freedom.

"We have come up with a methodology that is capable of distinguishing real, actual change that has taken place over a period of time," said Daniel Kaufmann, director of governance at the World Bank Institute and co-author of the report.

"Although a number of countries have improved rapidly in recent times, too often there has been inaction, and leaders face the challenge of setting clear targets of good governance standards and tracking their progress"

World Bank report

"Because of the new methodologies and large number of sources that we are using to aggregate these indicators, we have a better assessment of governance for countries with much higher degree of precision than in the past," he added.

The report does not rank countries, but provides indicators on governanace drawn from 37 separate date sources constructed by 31 different organisations.

It compares a single country's performances across six indicators - voice and accountability; political instability and violence; government effectiveness; regulatory burden; rule of law; and control of corruption.

Kaufmann said the study showed that good governance was not a luxury that only wealthy countries could afford.

Political will

Emerging countries like Botswana, Chile, Slovenia and Baltic nations have also shown high quality of governance, he added.

George Bush wants to link aid to
good governance

He said progress towards good governance was also possible more quickly than initially thought over a six to eight-year period.

"This suggests there is little truth to the common perception that improvements in governance may occur over the long term while deterioration can occur very quickly," he said.

The study shows that a small improvement in the quality of rule of law in a country can, on average, result in a 300% increase in per capita incomes in the longer term.

Kaufmann said political will was the main driver in countries that had shown better governance.

The Web page to compare performances across six indicators  is at http://www.worldbank.org/wbi/governance/govdata.