Quality of Government is Needed to Reduce Poverty and Economic Inequality

Abstract

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.