ERADICATING POVERTY IN FRAGILE STATES: PROSPECTS OF REACHING THE “HIGH-HANGING” FRUIT BY 2030 poverty than any of the single-intervention scenarios alone.<sup>23</sup> Unfortunately, even in the GSP scenario, fragile states do not manage to eradicate poverty. This should be interpreted as the limit of poverty reduction possible in FCS given current approaches and trends and can inform reasonable target setting for this group of countries.

If not 3%, what is a reasonable poverty goal for fragile states? Our GSP scenario produces a poverty rate around 20% in 2030, but this poverty rate is achieved with very optimistic assumptions for GDP growth rates and shared prosperity captured by the Gini coefficient. While the international development community agrees that growth and shared prosperity are essential in poverty eradication, policymakers obviously cannot directly change economic growth or inequality and must instead adopt policies that promote growth or reduce inequality. We next turn to the impacts on poverty reduction for FCS of more policy-oriented approaches.

# 5. TARGET POINTS FOR ACTION IN FRAGILE STATES: INSTITUTIONS, CONFLICT, AND

# POLICIES

## 5.1 RATIONALE

Growth and shared prosperity are integral parts of poverty eradication—on this point, the literature, historical trends, and our scenario analyses agree. But how do policymakers promote growth and shared prosperity in fragile states? What is keeping fragile states from improving growth and attaining more equitable distributions of income and consumption? To answer these questions, we turn our analysis first to two core elements of fragility—weak institutions and the presence of conflict.

Both weak institutions and the presence of conflict inhibit economic growth and, in some cases, exacerbate inequality. For example, weak institutions contribute to poor health and education, decreased government transparency, increased government corruption, poor infrastructure, and inefficient economic management, fiscal policy, and business regulation (North 1990; Tanzi and Davoodi; 2002; Rodrik 2007; Fukuyama 2011; Acemoglu and Robinson 2012). The presence of conflict also has extensive detrimental effects on the development of a society. According to a review of earlier analyses by the 2011 WDR,"... a major episode of violence ... can wipe out an entire generation of economic progress."<sup>24</sup> Our second set of optimistic scenarios represents the possible gains that can be made if these two issue areas are directly addressed as a part of the post-2015 agenda. The improvements used in our optimistic scenarios are based around historically-observed rapid improvements in institutional strength and reductions of conflict in fragile states following the methodology developed by Pritchett and de Weijer (2010). This set of optimistic scenarios models improved institutional capacity and a concerted move by domestic actors and the international community to reduce conflict in fragile states.

## 5.2 METHOD

To identify realistic prospects for improving institutions and reducing conflict, we first quantify the current level of institutional capacity and conflict in each fragile state. A good choice for quantifying institutional performance would have been the Country Performance and Institutional Analysis (CPIA) score, which is used as the primary criteria for the Fragile and Conflict-Affected Situations (FCS) list. The CPIA score is the average of four indices, or “clusters”: 1) Economic management, 2) structural policies, 3) policies for inclusion and equity, and 4) public sector management. However, historical CPIA scores have not been incorporated into the IFs model and are not publicly available before 2005. Instead, to understand patterns of change over time we turn to several governance indices that are forecast within the IFs model and

> 23 This value is, of course, still above the 2030 values of the World Bank's low scenario and that of Chandy for their somewhat different sets of fragile states with associated lower starting points in 2010. Among the reasons are the dynamics around household consumption share of the IFs economic and financial forecasts that we discussed earlier.

> 24 For an extensive discussion of the effects of conflict on development, see pp. 5-6 of the 2011 WDR including this summary quote on page 6.

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