Good governance and multidimensional poverty

ORIGINAL ARTICLE

 Good governance and multidimensional poverty: A comparative analysis of 71 countries

By: Christoph Jindra, Ana Vaz

 Abstract

In 2015, the international community committed to “reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions.” According to international development agencies, good governance is crucial to achieving this. We examine the relationship between good governance and multidimensional poverty using hierarchical models and survey data for 71 countries. Our results suggest there is a direct effect of good governance on multidimensional poverty and that good governance is associated with reduced horizontal inequalities. However, we find evidence of a beneficial effect of good governance for middle-income countries but not for low-income countries. Thus, while our results suggest that good governance can play a role in reducing multidimensional poverty, they also suggest that governance reforms alone might not yield the desired effect for all countries.

  INTRODUCTION

With target 1.2 of the Sustainable Development Goals, the international community committed to “reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions” by 2030 (United Nations, 2015, p. 18). The formulation of this target took an explicit multidimensional view of poverty, which is now frequently seen as an important complement to traditional poverty measures based on income or consumption. At the same time, major international development agencies and institutions have repeatedly argued that good governance is essential for the successful reduction of poverty (DFID, 2006; United Nations, 1998). Trust in the beneficial effects of good governance for development is so high that, in 2012, Official Development Assistance to support governance and peace in developing countries was higher than for any other sector (OECD, 2014). The implicit assumption behind this good governance agenda is that more effectively run countries, those that more strictly follow certain rules of good governance, are able to develop faster and use available resources more efficiently to help the most vulnerable in the society (Dellepiane-Avellaneda, 2010; Holmberg, Rothstein, & Nasiritousi, 2009).

Different studies have documented the relationship between good governance and a variety of development outcomes (e.g., Farag et al., 2013; Halleröd, Rothstein, Daoud, & Nandy, 2013; Holmberg et al., 2009; Kaufmann, Kraay, & Zoido-Lobatón, 1999; Lin, Chien, Chen, & Chan, 2014; Rajkumar & Swaroop, 2008; Sacks & Levi, 2010). Chong and Calderón (2000) as well as Henderson, Hulme, Jalilian, and Phillips (2003) focus specifically on the association between good governance and monetary poverty. However, little work has been done to empirically link and analyze the relationship between good governance and multidimensional poverty. To the best of our knowledge, the only exceptions are Björn Halleröd et al. (2013) and Adel Daoud, Halleröd, and Guha-Sapir (2016), who focus on child poverty. Thus, we have little to no specific knowledge regarding the association between good governance and general multidimensional poverty. This article aims to close this gap by examining the relationship between good governance and one measure of multidimensional poverty, the global Multidimensional Poverty Index (global MPI) (Alkire & Santos, 2014). We focus on three questions. First, is there a direct relationship between good governance and multidimensional poverty? Second, does good governance have an impact on inequalities across groups? And, third, does the relationship between governance and multidimensional poverty vary across low- and middle-income countries?

We analyze the association between the global MPI and good governance using micro- and macrodata from 71 low- and middle-income countries. Using multilevel probit models, we find that our main measure of good governance is associated with lower levels of poverty. We also find that the inequality between urban and rural areas, understood as the difference in the probability of being poor, is smaller for countries with higher levels of governance, thus indicating that better governance might help reduce horizontal inequalities. However, when allowing for effect heterogeneity between middle- and low-income countries, we find that both effects seem to be driven by the beneficial effect of good governance for middle-income countries. Thus, while good governance seems to have a positive effect on multidimensional poverty in middle-income countries, our data do not support the same conclusion for low-income countries.¹ These findings reinforce the skepticism of some that good governance alone might not help countries that are stuck in poverty traps (Sachs et al., 2004).

The article is organized as follows. First, we discuss some of the theoretical arguments of why good governance might be relevant in reducing poverty, review some of the empirical evidence, and introduce our research questions. Subsequently, we describe the data, variables, and our empirical strategy. We then report our findings as well as results for the robustness tests. The final section concludes the article.

  BACKGROUND AND RESEARCH QUESTIONS

While the importance of good governance for development is often postulated, the theoretical and empirical debate has not been conclusive (e.g., Holmberg et al., 2009). A contributing factor might be that there seems to be no generally accepted definition (e.g., Gisselquist, 2012).² Thus different authors refer to different concepts and hence potentially very different causal mechanisms when arguing for the importance of good governance. A brief and nonexhaustive overview of some arguments found in the literature is presented below.

One general intuitive argument is that increased efficiency and accountability of public institutions leads indirectly to better development outcomes and poverty reduction (Earle & Scott, 2010; UNDP, 2003; World Bank, 2008). The delivery of public services and the provision of social safety nets are two main responsibilities of public administration. Thus, improvements in the efficiency and accountability of public institutions should lead to improvements in the coverage and quality of service delivery (Earle & Scott, 2010), which in turn should improve the lives of poor people, who are less likely to be able to fall back on privately provided alternatives to the public service infrastructure (Klugman, 2002). Another mechanism, listed by Earle and Scott (2010, p. 33), is that “a more efficient and accountable public administration creates an environment that is more conducive for private sector development, which will ultimately lead to economic growth.”

Certain elements of these intuitive arguments are articulated in more detail in the literature that follows the tradition of Max Weber. Here it is argued that certain structural features of bureaucratic institutions play an important role in facilitating an environment that stimulates growth and reduces poverty (Evans & Rauch, 1999; Henderson et al., 2003; Rauch & Evans, 2000).³ Some of these features, as discussed by Evans and Rauch (1999), include meritocratic recruitment processes, options for long-term career planning, as well as competitive salaries as part of progression within an institution. According to this study, meritocratic recruitment processes, as opposed to cronyism or patronage, ensure that the office holders have a certain level of qualification, are more likely to develop a higher level of commitment to the goals of the institution, are more motivated, and are less likely to engage in corrupt practices. Similarly, providing the option of long-term careers increases corporate coherence, ties among employees, and retention of competent and trained staff. More importantly, the long-term socialization within the organization creates an “esprit de corps,” fostering norms of impartial and noncorrupt behavior (Dahlström, Lapuente, & Teorell, 2012). Competitive salaries are expected to reduce corruption as well. If these arguments are accepted, one can find different potential causal mechanisms linking bureaucracy to economic growth. If it is true that these features lead to a more competent, purposive, and coherent bureaucracy, one can expect that such a bureaucracy is also more likely to follow long-term aims and thus more likely to spend money on infrastructure projects instead of consumption, which then facilitates growth (Evans & Rauch, 1999). Similarly, lower levels of corruption are equivalent to a reduced implicit tax on the private sector and thus also contribute to a growth-friendly environment.⁴

Comprehensive literature that focuses on the effects of corrupt practices can also be found. The argument here is that curbing corruption has a general impact on growth by increasing the economy’s efficiency but also has a more specific impact on the poor, who, it is argued, are disproportionately affected by it (Chetwynd, Chetwynd, & Spector, 2003; Klugman, 2002; Shepherd, 2000). Multiple authors have focused on the harmful effects of corruption, notably on loss of government revenue (Fjeldstad & Tungodden, 2003), costs to businesses (Caiden, Dwivedi, & Jabbra, 2001), distortion of standards of merit and erosion of respect for rule of law (Hamir, 1999), lower quality of infrastructure (Schloss, 1998; Tanzi & Davoodi, 1998), and distortion of markets (Mensah, 1999). More specifically related to poverty, some authors argue that corruption diverts public funds away from the poor (Klugman, 2002; Sacks & Levi, 2010). For instance, a corrupt government is more likely to overspend on defense and infrastructure projects that offer high private payoffs, to the detriment of pro-poor expenditures, such as those on primary education and health care (Klugman, 2002). Corruption also impairs service delivery (Cockcroft et al., 2008). This tends to particularly affect poor people who cannot afford private alternatives to public services like education, health, and security, and for whom bribes represent a higher share of their income (Klugman, 2002).

A further argument, cited by Chong and Calderón (2000), suggests that bad governance fosters unequal power relations. Biased institutions can enable a small elite to secure the most gains from economic growth by manipulating contract enforcements and property rights, as well as through discrimination (Chong & Calderón, 2000; Klitgaard, 1991). Thus, improvements in the quality of institutions “may reduce the power of special interest groups or minority elite that control the economy, and thus help lower uncertainty and improve the delivery of public services and allocation in both the marginal urban and rural areas” (Chong & Calderón, 2000, p. 133), where poor people usually live.

On the other side of the debate, some critics recognize the importance of good governance but question the type of reforms required to promote growth and poverty reduction. Merilee Grindle (2004) argues that “good governance is deeply problematic as a guide to development” (p. 525) and poverty reduction. According to her, the list of governance reforms is too long and without much guidance on how to set priorities or sequence the interventions. Thus, the implementation of such an agenda can be overwhelmingly demanding, especially for the poorest countries that also tend to have the weakest institutions and limited resources. Similarly, Mushtaq Khan (2007, 2009) argues that the achievement of good governance objectives will probably be compromised by the country’s fiscal and structural constraints and, hence, the pursuit of such an agenda may divert efforts from other policies that are more effective in promoting growth and reducing poverty. Sachs et al. (2004) also question the importance of governance in reducing poverty at the early stages of development, arguing that governance reforms alone are insufficient to overcome the poverty trap some countries face.

Various empirical studies have looked at the relationship between good governance and different development outcomes. Although those are not strictly comparable due to varying definitions and indicators, we summarize some exemplary findings. Good governance was found to be associated with lower levels of infant mortality and higher levels of adult literacy, income per capita, and food security (Kaufmann et al., 1999; Lin et al., 2014; Sacks & Levi, 2010). Others found lower levels of malnourishment, improved access to safe water and health care for children, better overall life expectancy, and water quality in countries with better governance (Halleröd et al., 2013; Holmberg et al., 2009). A few studies looked at the moderating effect of good governance and found improved efficacy in public health expenditures and spending on primary education in countries with better governance (Farag et al., 2013; Rajkumar & Swaroop, 2008). Chong and Calderón (2000) found that incidence as well as intensity of poverty is associated with the quality of bureaucracy. Similarly, Henderson et al. (2003) found that more competent and effective public bureaucracies reduce poverty faster. Finally, Daoud et al. (2016) found that more effective governance is associated with lower levels of multidimensional child poverty.

This article contributes to the understanding of the importance of good governance for development by looking at three distinct, possible relationships between good governance and multidimensional poverty.

First, while there are studies that have looked at the impact of good governance on multidimensional child poverty, looking either at dimensions in aggregate or at each dimension individually (Daoud, 2015; Daoud et al., 2016; Halleröd et al., 2013), none of these studies has examined the relationship between good governance and a measure of multidimensional poverty that covers the entire population. This study is the first to use the global MPI, the only international measure of general multidimensional poverty, available for more than 100 countries and updated regularly.⁵

Second, there are two possible levels at which good governance can act as a moderating variable. Good governance can influence the effect of other country-level variables, which has previously been partially investigated by, for example, Daoud et al. (2016), Marwa Farag et al. (2013), and Rajkumar and Swaroop (2008). Another potential effect is across levels. David Brady, Fullerton, and Cross (2009), for example, show that welfare states mitigate the risk of poverty associated with individual-level characteristics. Thus, while individual traits and characteristics can determine outcomes and lead to horizontal inequalities, understood as inequalities across groups (e.g., Atkinson, 2015; Wisor, 2016), individuals do not act in a social vacuum and these varying social and political contexts partially account for differences in horizontal inequalities. Our study is the first to explore the impact of good governance on these horizontal inequalities.

Finally, some authors (e.g., Grindle, 2004; Khan, 2007, 2009; Sachs et al., 2004) seem to suggest that the relationship between quality of governance and poverty might depend on the countries’ stage of development. In other words, good governance or the implementation of government reforms might be of no use if a country’s general resources are too low to effectively translate government capabilities into positive outcomes in terms of poverty levels. In order to do justice to these concerns, we investigate whether or not the effect of good governance on multidimensional poverty varies across low- and middle-income countries.

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https://onlinelibrary.wiley.com/doi/epdf/10.1111/gove.12394