Quality of Governance and Human Development

Abstract

This study examines the linkage between the quality of governance and human development over nine years during the period 1995 to 2011 by covering up to 186 countries. Various aspects of the quality of governance have been captured by six Worldwide Governance Indicators (WGIs); namely, control of corruption, government effectiveness, political stability and absence of violence, regulatory quality, rule of law and voice and accountability. Human development is proxied by the Human Development Index (HDI) which provides a measure of the social and economic development of a country by capturing education, health and income levels of the country’s residents. Results of this study suggest the following. First, the quality of governance and human development are mutually reinforcing in the sense that the quality of governance has a significant impact on human development and vice versa. Second, the magnitude of the impact of human development on the quality of governance is much larger than the impact of governance on human development. Third, the magnitude of the impact of the quality of governance on human development has been falling over time; whereas the impact of human development on the quality of governance has been relatively stable. The results indicate that allocating resources to human development offers higher dividends to communities than allocating resources to improving the quality of governance. The main policy implications of our findings are that countries can increase human well-being by making governance systems more productive and diverting the productivity gains to investment in different aspects of human development such as education and health.