Quality of Government is Needed to Reduce Poverty and Economic Inequality

While it is true that lots of people in some developing countries have been lifted out of poverty during the recent decade, severe poverty remains a huge problem, not least in Sub-Sahara Africa. Recognizing the importance of institutions for alleviating poverty and economic inequalities, this paper starts by asking the question “which institutions”. Our review of the literature indicates that representative democracy seems to work poorly as a cure against poverty or large-scale economic inequalities. Our empirical analysis shows that this holds true for poor (non-OECD) countries. The main empirical analysis tests the relation between measures of QoG Quality of Government – (such as levels of corruption and the rule of law) and poverty/inequality. The empirical analysis covers both a large n-analysis and a comparison of two cases (Singapore and Jamaica), The main conclusion from the large-n empirical test is that quality of government matters for reducing absolute poverty among poor countries and for reducing relative economic inequalities among rich as well as among poor countries also after controlling for democracy. This conclusion if strengthened by the comparative analysis of democratic but low QoG Jamaica and authoritarian but high QoG Singapore. Sören Holmberg The Quality of Government Institute, Department of Political Science University of Gothenburg sören. holmberg@pol.gu. se Bo Rothstein The Quality of Government Institute, Department of Political Science University of Gothenburg bo.rothstein@pol.gu. se Poverty and Political Institutions In a global perspective, poverty, including extreme poverty as well as huge economic inequality, remains as one of the most pressing social and human issues. Recent figures from the World Bank show that about half the planets population has to get by on less than 2.50 US dollars per day. The consequences are well-known in areas such as population health (including infant mortality), literacy, nutrition and many other measures of human development. Millions of children die every year and most of them could be saved by lowcost interventions (Doces and Sanjian 2009). While it is true that lots of people in some developing countries have been lifted out of poverty during the recent decade, severe poverty remains a huge problem, not least in Sub-Saharan Africa. Ever since development issues became an academic speciality, battalions of researches from various disciplines have ventured into this problem and come up with many different kinds of explanations and policy recommendations. A central question in this debate has been the role of the state in economic development. Since the late 1990s, economists and political scientists alike have started to argue that dysfunctional government and social institutions play a central part in the story. This “institutional turn” is a clear change from many earlier theories that focused on the lack of things like technology, skills and infrastructure. Two prominent scholars in the field, Daron Acemoglu and James Robinson, have thus argued that factors like (the lack of) technology, skills and physical capital are just “proximate” causes behind the lack of economic development and extreme poverty in many countries. To point at factors like these borders on just a repetition of the data since it is self-evident that people that lack access to good technology, adequate skills and capital to make necessary investments will be poor. Nevertheless, the well-known economic historian Nial Ferguson recently stated "the lesson from economic history is very clear. Economic growth . comes from technological innovation, and gains in productivity and these things come from the 1 This is a jointly written paper for which the authors share responsibility. However, Holmberg is the main author of the section “empirics I” and Rothstein for the section “empirics II”. Many thanks to Petra Olsson and Marcus Samanni for excellent research assistance