The quest for pro-poor and inclusive growth: the role of governance

Djeneba Doumbia

doi:10.1080/00036846.2018.1529392

Abstract

ABSTRACTThis paper analyses the role of good governance in fostering pro-poor and inclusive growth. Using a sample of 112 countries over 1975–2012, it shows that growth is generally pro-poor. However, growth has not been inclusive, as illustrated by a decline in the bottom 20 percent of the income distribution. While all features of good governance support income growth and reduce poverty, only government effectiveness and the rule of law are found to enhance inclusive growth. The investigation of the determinants of pro-poor and inclusive growth highlights that education, infrastructure improvement, and financial development are the key factors in poverty reduction and inclusive growth. Relying on the panel smooth transition regression (PSTR) model, the paper identifies a nonlinear relationship between governance and pro-poor growth, while the impact of governance on inclusive growth appears to be linear.

Highlights

Poverty remains widespread, in developing countries, notwithstanding recent progress
Where Yit is a vector of the three distinct dependent variables capturing poverty and inclusiveness for each country i during period t: (i) the income of the poorest 20 percent in the income distribution; (ii) the poverty headcount ratio at $2 a day in purchasing power parity (PPP) ( Pit); and (iii) the income share of the poorest 20 percent ( Qit) . lnGDPpcit is the logarithm of gross domestic product (GDP) per capita
It investigates the effects of good governance in reducing poverty and attaining inclusive growth and assesses the factors that have been driving these outcomes

Summary

Introduction

This paper provides a cross-country analysis investigating the role of economic growth in poverty reduction and adds two main contributions to the existing literature. It contributes to the recent and growing literature on inclusive growth by assessing the extent to which growth has been pro-poor and inclusive. It investigates the main structural factors that impact inclusive growth, with particular focus on an important channel that has received little attention so far: the quality of governance.

Literature review

Econometric methodology

Pro-poor and inclusive growth: empirical evidence

Nonlinear and threshold estimations

Findings

Conclusion and discussion