The Capacity Continuum: Tracking the Capacity of State Institutions in Driving Human Development

Abstract

This paper examines the relationship between a state’s institutional capacity and human development. After analyzing human development trends since 1980 and the state’s role in helping to explain variance, the paper carries out a series of empirical exercises using a proxy variable for institutional state capacity — the Government Effectiveness Index (GEI) from the World Governance Indicators — and human development as measured by UNDP’s Human Development Index (HDI). The panel data, which captures more than a decade of performance, suggests a strong, positive relationship between a state’s institutional capacity and its progress on human development. Plotting the data further reveals a ‘capacity continuum’ in which countries seem to follow a common trajectory over time. The data trends suggest that countries with low institutional capacity and low levels of human development struggle to escape the capacity-deficit trap. Conversely, states that boast high levels of human development and low levels of institutional capacity remain highly vulnerable to shocks and are oftentimes those hardest hit. The data trends also suggest that countries characterized by strong state institutions and high levels of human development are those that are most resilient and best able to withstand and manage shocks even during short-term downturns. Given the context-specificity and idiosyncratic nature of institutional change, the paper provides illustrations of the different typologies of countries along the capacity continuum. The investigation concludes by offering the capacity continuum as an analytical tool to support policymakers in their prioritization of policies and investments.