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Key Text Does Good Governance Contribute to Pro-Poor Growth? A Review of the Evidence from Cross-Country Studies

Author: D Resnick and R Birner
Date: 2006
Size: 57 pages (409 KB)

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Summary

Does good governance lead to poverty reduction? What is the relationship between good governance and pro-poor growth? This paper by the International Food Policy Research Institute (IFPRI) reviews the concepts of good governance and pro-poor growth and develops a conceptual framework to analyse cross-country studies that examine the links between the two. This assessment finds that there is no clear relationship between governance and pro-poor growth.

There is no consensus on how to define governance, although participation, accountability, transparency and the rule of law are common elements of most definitions. Consequently, numerous indicators are also used to measure governance. Growth is defined as pro-poor if the poor benefit more than the non-poor (which implies declining inequality), or if growth leads to absolute reductions in poverty. The conceptual framework linking governance and pro-poor growth shows that these links are non-linear and dynamic. Governance influences pro-poor growth through multiple channels and variables which interact with each other through various feedback mechanisms. These variables include a country’s natural conditions, the socioeconomic and political system, the political process, the decision-making environment and policy choices.

A review of cross-country studies suggests that there is no clear relationship between governance and pro-poor growth. It also highlights the methodological challenges of examining these links. The studies show that:

Governance indicators that represent a sound decision-making environment, such as political stability and rule of law, are associated with growth but provide mixed results with regard to poverty reduction.
Governance indicators that refer to transparent political systems, such as civil liberties and political freedoms can reduce poverty. However, the evidence is rather mixed and the effect of these variables on growth is unclear.
Policies relating to macroeconomic stability and education promote growth, equity and poverty reduction. Trade openness increases growth, but increases inequality.
Government spending may improve equality, but reduce growth and increase poverty.
It is difficult to compare the impact of governance on pro-poor growth across countries at different stages of development and over time.
Subjective governance indicators may reflect biases and are not easily replicable across countries with different cultural and socioeconomic backgrounds.

To understand the interactions between governance and pro-poor growth, further research is required in several areas:

The ways in which political processes and institutions affect the implementation of pro-poor policies should be examined. This implies that objective governance indicators look at the process, or how pro-poor outcomes are achieved.
Analysing disaggregated indicators that focus on specific aspects of governance, such as freedom of the press, would highlight which components of good governance are conducive to pro-poor growth.
The focus of studies should be expanded to include the role of external actors such as donors and foreign governments.
Cross-country studies should group countries according to similar development characteristics. The relationship between governance and pro-poor growth at the regional level can also be examined. Alternatively, pairs of countries can be compared, for example, India and China.
Cross-country regressions need to be combined with micro-level analyses, case studies and historical narratives. This is particularly important since the notion and relevance of good governance varies according to the socio-cultural and political contexts in a particular country or community.

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Source: Resnick, D. and Birner, R., 2006, ‘Does Good Governance Contribute to Pro-Poor Growth?: A Review of the Evidence from Cross-Country Studies’, DSCD Discussion Paper, International Food Policy Research Institute, Washington
Author: International Food Policy Research Institute (IFRPI), http://www.ifpri.org/