Giving Compass' Take:

• Four policy recommendations emerge that bolster good governance that impact pro-poor and inclusive economic growth. 

• How can donors participate in inclusive growth? 

• Read more about the relationship between governance and economic growth. 

Despite the positive narrative around the significant decline in extreme poverty around the world, not all the news is good. Still today more than 700 million people live with less than $1.90 a day, more than 72 percent of them in Africa. Worryingly, the COVID-19 pandemic could push a further 71 million people into extreme poverty under the baseline scenario, and 100 million under the downside scenario—wiping out progress made in poverty reduction since 2017.  At the same time, income inequality is on the rise in most developed and developing countries.

How do these two divergent dynamics—decreasing poverty and rising income inequality—impact the income opportunities of the less fortunate, namely, the poorest 20 percent of the population? The good news, which I share in a recent paper, is that growth has been pro-poor globally as the income of the poorest 20 percent has increased with per capita income growth.

In my cross-country analysis on the main structural factors that impact pro-poor and inclusive growth with a special focus on the quality of governance (as measured by the Worldwide Governance Indicators on a scale from -2.5 to 2.5), four policy-relevant recommendations emerge. These are:

  • First, the combination of political, economic, and institutional features of good governance, especially the control of corruption and regulatory quality, improves the income of the poor and decreases poverty.
  • Second, there is a minimum level of control of corruption beyond which pro-poor growth tends to accelerate.
  • Third, only two features of governance—government effectiveness (economic governance) and rule of law (institutional governance)—promote inclusive growth.
  • Fourth, enhancing human capital development through improved access to health care, education, and nutrition (especially for children); developing infrastructure; and advancing the financial sector are all key drivers for both poverty reduction and inclusive growth.

Read the full article about good governance in inclusive growth by Djeneba Doumbia at Brookings.