Institutional quality and poverty reduction in BRICS

Abstract

AbstractThe present study aims to explore the relationship between governance conditions and absolute poverty reduction in BRICS countries from 1997 to 2011. The study employs Kao's cointegration followed by Fully Modified Ordinary Least Square (FMOLS) and Dumitrescu–Hurlin causality tests. The investigation is based on six institutional measures of governance conditions (government effectiveness, political stability and absence of violence, control of corruption, voice and accountability, regulatory quality, and rule of law) that explain how the poverty rate could be speeded up by deep‐rooted poor institutional quality. The study's major finding shows that rule of law is the significant governance condition that directly helps in poverty reduction in BRICS countries. Other governance conditions affect poverty rates via income and distribution effects. This supports the assertion that strict compliance to the rule of law is the significant governance condition for poverty reduction. Whereas, in the short‐run only economic growth significantly contribute to absolute poverty reduction. Therefore, BRICS countries should focus on growth‐enhancing sectors and strict compliance with the rule of law to achieve lower poverty rates.