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Poverty reduction and good governance: Evidence from Islamic Development

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 Global Journal of Quantitative Science
Vol. 3. No.3. June 2016 Issue. Pp.30-44

Poverty reduction and good governance: Evidence from

Islamic Development Bank member countries

Bukhari M. S. Sillah
Chief Economist Complex, Islamic Development Bank.

Abstract

This paper attempts to highlight the importance of good governance in the fight against poverty.
It employs 2014 data to describe the relationships between governance indicators and eight
poverty indicators. The governance indicators of the World Bank and Transparency International
are deployed as governance variables. It is found that the unaccountable and corrupt countries
see their infant mortality increase, income poverty increase, increasing number of their urban
population become slum dwellers; and water, electricity and education become reserved for the
lucky few. When countries free voices to hold the representatives accountable, implement
regulation and rule of law equitably, and maintain efficiency and effectiveness and stability, then
the limited economic resources will be used correctly to fight poverty. Accountable and
corruption-free governments are found to reduce poverty better than the unaccountable and
corrupt governments. The fight against poverty needs two vital conditions as the findings here
indicate. They are expansion of per capita GDP as a necessary condition, and good governance
for the administration of the economic resources as a sufficient condition. Good governance is
found to be particularly relevant for the reduction of under-five mortality, improvement of living
conditions (reduction of urban slum dwellers) and increased access to clean water. This implies
that development institutions and agencies should set governance targets when providing
financial resources in the fight against poverty. This fight is won and sustained not only with
provisions of financial resources but also with attainment of good governance in terms of
accountability and transparency.

Introduction

This paper tries to explain and answer the dilemma that could face development
agencies. Where should a development agent start in tackling poverty? Should the
agency start by building good governance then bring economic development to address
poverty? Alternatively, should the agency start by increasing per capita incomes of the

Disclaimer: The opinions, conclusions and recommendations in this paper do not represent the
Islamic Development Bank
 Bukhari Sillah. Poverty reduction and good governance Page 31

poor, and as they get out of poverty, the governance problem would solve itself? It
means that when people are poor they make irrational economic decisions, which
induce bad governance from the individual level up to the state level. Some answers to
these questions will be what this paper attempts to provide. The answers should assist
the development agencies in prioritizing their development resources between poverty
alleviation and governance support. When MDGs were launched in 2000, governance
was apparently missing. Many researchers and institutions argued that the absence of
governance as indicators and targets was in part responsible for the off-track
performance of countries on MDGs. Thus, Goal 16 of Sustainable Development Goals
touches substantially on good governance and sets 12 targets to be met by 2030. This
underscores the important role good governance plays in sustainable development. The
analysis of this paper will be both descriptive and empirical to ascertain a link between
poverty reduction and good governance within the IDB member countries.

Objectives: To describe the performance of member countries on poverty reduction in

the light of good governance. To estimate empirical relationships between poverty and
good governance. Expected contributions: The findings of this paper should add to
the debate that good governance as a goal and targets should not be missing in any
development plan IDB’s 10 Year Strategic Framework has prioritized governance in its
mission for the member countries. The findings of this paper will provide evidence for
the areas of improvements in member countries. Scope of analysis:Poverty as defined
by UN Commission on Sustainable Development, which in 2007 identified poverty as a
theme with six sub-themes of income poverty, income inequality, sanitation, access to
drinking water, access to energy and living conditions. These sub-themes do not include
health and education. In line with Oxford Poverty and Human Development Index, this
paper adds health and education dimensions of poverty to have in total eight sub-
themes. The indicators of these sub-themes will be used to analyze the performance of
member countries.

Good governance has been defined in many ways. The World Bank governance
indicators have summarized good governance into six indicators namely accountability,
political stability, government effectiveness, rule of law and control of corruption. For the
World Bank, good governance is judged against accountability, transparency, rule of
law and participation. This paper will confine itself to three indicators of governance, and
they are participation, control of corruption and accountability. The table below is
extracted from Sustainable Development Indicators revised by UN Commission on
Sustainable Development Report 2007, we adjust the dimension of poverty by including
health and education from Oxford Poverty and Human Development Index, and we add
participation and accountability under dimension of governance. Each dimension of
poverty will be analyzed in relation to the governance factors. The table below gives
guidelines for the variables of interest the paper will investigate and analyze.

Table 1: poverty and governance measures by some development agencies

Variable Dimension Measure
Income poverty % population living on less than $1.9 a day

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 Bukhari Sillah. Poverty reduction and good governance Page 32

Poverty Inequality Gini index

poverty
Sanitation % population using plumbed sanitation
poverty
Water poverty % population accessing clean water
Energy poverty % population accessing electricity
Living poverty % of population who are urban-slum dwellers
Health poverty Under-5 mortality
Education Adult literacy
poverty
Participation Voter turnout as % of voting age population to be
Good sourced from Institute of Democracy and Electoral
governance Assistance
Accountability Summary five governance indicators of the World Bank
namely voice/accountability, rule of law, regulatory
quality, effectiveness, and stability
Control of Corruption perception index of Transparency
corruption International
Source: UN CSD report 2007 and author’s adjustments

Literature review

Why do people become poor? Or why are some people poor and others rich? This is an
old question that Adam Smith asked at nation-State levels. It is a new question that
development institutions are grappling with at both micro-society and Nation-State
levels. The literature has advanced numerous answers for the question; and yet no
conclusive agreement on what causes poverty. Some blame it on the poor themselves
as proclaimed in the poverty thesis of Lewis (1970). He accuses the poor of individual
deficiency that holds back the poor in the market competition. Patterson (200) and
Edgerton (200) have also supported this line of narration. They argue that poverty is a
cultural product. It starts with an individual deficiency in some form of physiological and
mental development, and as a result the individual becomes less educated and less
healthy. The children he brings will become further less educated and less healthy. As
this conditions persist, they adapt their behaviors to create interdependent generations
that sustain the culture of poverty, Jordan (2004) and Bradshaw (2006). This culture can
then form the form political institutions, which condition the economic institutions that
sustain the conditions of poverty. This argument holds that poverty happens by accident
at an individual level, it then evolves into culture of poverty that produces political and
economic systems, which act to reinforce conditions of poverty. To solve poverty from
the viewpoint of this argument is to prevent or eradicate the accidents of poverty. That
is, the poor should be empowered economically so that he can become more educated
and healthier. Seemingly, the Millennium Development Goal of poverty reduction was
premised on this hypothesis. No goals or targets were provided for governance
institutions, because they were not viewed seriously as a cause or source of poverty.
The counter argument to the culture theory of poverty holds that poverty is not by
accident, rather it is man-made, and it is institutional, embodied in political governance.

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 Bukhari Sillah. Poverty reduction and good governance Page 33

Acemoglu and Robinson (2013) believe that political intuitions define the economic
systems a country has. They drew on the example of Nogales City, which is half-
American in the north, and half-Mexican in the south. Due to different political systems
between United State of America and Mexica, the two halves of the city developed two
different distinct economic systems, and the American Half became rich, and the
Mexican Half became poor. No cultural differences between the two halves, and thus it
clearly negates the cultural theory of poverty. This is why the Post-2015 Agenda
admitted that poverty is not by an accident, rather it is a product of policy and power
distortions that generate discriminations, exclusions and injustice. International
Transparency report 2015 concludes that the reason for non-attainment of MDGs in
some countries was due primarily to bad governance and corruption. Evan al et (2013),
in reviewing the literature on governance, growth and poverty reduction, find that growth
is necessary for poverty reduction but without good governance the growth will not be
pro-poor. Without good governance, we may end up having poverty professionals, who
make living out of the poverty reduction programs, Lee (1985). They will organize
themselves to lobby for increasing funding for their professions rather the fight against
poverty. This was the case discovered by Palmeter (2011) in the case of the First
Nations in Canada and by Acemoglu and Robinson (2010) in the case of Absolutist and
Patrimonial system of African Elites.
How does then good governance relate to poverty? It depends on how good
governance is defined and measured. Mere existence of good governance institutions
do translate into poverty reductions, unless the governments transform them into action.
This transformation is what measures good governance. The table summarizes some
measures of good governance by some development institutions:
Table 2: Measures of Governance
Institution Measures / judged by
World Bank Accountability
Rule of law
Control of corruption
Government effectiveness
Political stability
Regulatory quality
Good governance to be judged by: Accountability, Rule of law, Transparency
and Participation
Asian Good governance is judged by:
Development Bank Accountability, predictability, participation and transparency
African Good governance to be judged by:
Development Bank Accountability, transparency, control of corruption, participation, legal and
judiciary reform
UNDP Good governance to be judged by: Rule of law, transparency, responsiveness,
equity, effectiveness and efficiency, accountability and strategic vision.
Source: summarized from IFAD Executive Board 67th Session, Rome, 8 – 9 Sept. 1999

The empirical evidence on the relationship between the measures of governance and
the poverty reduction is not conclusive. Three issues could be responsible for the
inconclusiveness. One is the reliability of the measure of governance, Evan and
Ferguson (2013), and another issue is the time length the governance may take to have
a meaningful impact on poverty reduction, Grindle (2004). More importantly, some
governance imperfections were found acceptable or helpful in the development of some

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 Bukhari Sillah. Poverty reduction and good governance Page 34

countries, such as South Korea, Taiwan, and Singapore. On the other hand, good
governance is credited for the transformations of countries such as Botswana, Chile,
and Costa Rica, Kaufman (2008). The World Bank research (2008) shows that
countries that improve on the governance can increase their national income four times
and have their infant mortality fall by 75%. This quadruple fold of improvements
resulting from good governance is termed “400 percent governance dividend” by
Kaufman (2008). Three measures of good governance namely participation, control of
corruption and responsiveness are found to contribute significantly to poverty reduction.
Narayan (1995) and Sham el at. (1995) found participation of the beneficiary in the
decision making to improve performance. In reviewing the literature on governance-
poverty nexus, Chetwynd et al (2003) found corruption to be a significant factor that
exacerbate the situation of poverty. Sebududu (2010) concludes that government
responsiveness and accountability were instrumental in the economic transformation
and poverty reduction of Botswana. For many Sub-Sharan African countries, corruption
and lack of participation are found to sustain the conditions of poverty, Abdae-Karanke
(2014).
This paper will add to the debate and attempts to provide new evidence on the poverty-
governance nexus. It confines itself to control of corruption, accountability, and
participation as measures of good governance. These measures are found to be the
common denominations among many development institutions on how good
governance is measured and judged. There are limited data on other measures of
governance, such as strategic vision, equity, predictability and judiciary reforms, and
hence the empirical models cannot include them in the analysis.

Descriptive Analysis

In this section, we produce the statistical summaries of the data and graph the poverty
measures against the governance indicators. In this we can visualize the hypothetical
relationships between the two variables. It is assumed that poverty can be explained by
economic growth and governance. Improvements in economic growth, and good
governance should translate substantially into poverty reduction in its multidimensional
perspectives. Multidimensional poverty index of OHPI for the latest available data on
IDB member countries is used to represent poverty variable. It measures the level of
deprivations people face in terms of health, education and living. Real per capita GDP
2014 is used to explain the relevance of economic development in poverty reduction.
Three Governance variables are used in this paper. They are participation in decision
making, corruption and accountability. Participation is measured by voter turnout as a
percentage of voting age population for the most recent data from the Institute for
Democracy and Electoral Assistance (IDEA); corruption is measured by corruption
perception index 2014 from Transparency International; and accountability measure
comes from the World Bank Governance Indicators 2014. These measures range from
0 to 100, with 0 indicating the poorest result and 100 indicating the best result. The
hypothesis is that if governance is relevant for poverty reduction in IDB member
countries, then higher values of governance measures should be associated with lower
poverty. That is, countries with better governance should have lower infant mortality,
better access to electricity, better access to safe drinkable water, better access to

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 Bukhari Sillah. Poverty reduction and good governance Page 35

plumbed sanitation, lower urban percentage of slum dwellers, higher literacy, and less
people living on $1.9 a day. We use the available data on IDB MCs to explore this
hypothesis.

Table 3: summary statistics of the data

Variable Observations Mean Std. Dev. Min Max

Under-five mortality 49 54.32245 37.69348 6.5 142.9

Income poverty at $1.9 35 31.18286 25.86302 0 80.4
Multidimensional poverty index 40 21.80191 18.43146 0.06341 60.46266
Urban slum dweller 35 47.17429 23.9402 7.3 91.6
Access to clean water 50 84.018 14.71267 50.8 100

Access to plumbed sanitation 52 63.51731 33.20896 10.8 100

Adult literacy 38 71.74474 24.15407 15.5 99.8
Access to electricity 51 69.9902 33.4957 6.4 100
Accountability 52 31.04501 16.74481 4.052671 68.41107
Corruption perception index 51 32.94118 12.05722 11 70

Participation rate 48 50.51333 22.62732 12.17 98.41

Table 3 above presents the summary statistics of the data. It shows that the under-5
mortality rate ranges from 6.5 per 1000 live births in Bahrain to 142.9 per 1000 live
births in Chad. It varies significantly from one country to another at a standard deviation
of 37.7 mortality per 1000 live births. Similarly, income poverty, urban slum dwellers,
access to plumbed sanitation, adult literacy and access to electricity, are highly variant
from one member country to another. In Azerbaijan no income poverty exists, and in
Mozambique 80.4% of the population live on less than $1.9 a day. In Suriname only
7.3% of the urban population live in slums, and in Sudan 91.6% of the urban population
live in slums. In Kuwait and Saudi Arabia 100% of the population has access to
plumbed sanitation; and in Niger only 10.8% of the population can access plumbed
sanitation. Azerbaijan has 99.8% adult literacy, while in Niger only 15.5% of the adults
can read and write. Populations in seventeen member countries out of the 51
observations have 100% access to electricity, and in Chad only 6.4% of the population
has access to electricity. It shows that member countries are substantially different as
poverty indicators as concerned. This variation however diminishes among the
members when it comes to governance indicators. Member countries on average score
poorer on accountability and corruption at 27.5 and 30 respectively than the world
average of 49.6 and 42.6 respectively. The most accountable member country is United
Arab Emirates at a score of 64.4% and it is also the most corruption free member
country at a score of 70%. These are the highest governance scores of accountability
and corruption that IDB member countries could attain in 2014. Majority of the member
countries fall below 50% score on accountability and corruption. The least accountable
country is Syria with 4.053%, and the most corrupt country is Sudan with 11%.
Participation in decision making is measured here as the voter turn as a percentage of
voting age population. From 48 observations, the participation rate ranges from 98.4%
in Uzbekistan to 12.17% in Kuwait. In the next table, we present the Spearman

35
 Bukhari Sillah. Poverty reduction and good governance Page 36

correlations. It provides us with the degree and signs of associations between

governance indicators and the poverty measures.

Table 4: Correlations between governance and various poverty measures

Variable Under- MPI Incom Inequali Slum Acces Access Access literac
5 e ty dwelle s to to to y
mortali povert r Clean Electrici Sanitati
ty y $1.9 water ty on

Accountabi Obs 49 40 35 33 35 50 51 52 38
lity .
Rho - - - 0.0256 - 0.602 0.2498* 0.3667* 0.323
0.5247 0.245 0.489 0.407 9* **
4**
*
6 9* 2**
P- 0.0001 0.126 0.002 0.8877 0.015 0.000 0.0771 0.0075 0.047
valu 6 8 2 0 7
e
Corruption Obs 48 39 34 32 35 49 50 51 38
.
Rho - - - 0.1181 - 0.567 0.1778 0.3322** 0.201
0.4351 0.113 0.383 0.375 0* 3
*
6 2** 1**
P- 0.0020 0.491 0.025 0.5197 0.026 0.000 0.2168 0.0172 0.225
valu 0 3 4 0 6
e
Participatio Obs 47 39 34 32 34 44 48 46 38
n .
Rho 0.0350 - 0.131 -0.1489 - - 0.0719 -0.0914 0.168
0.086 2 0.013 0.097 0
2 0 2
P- 0.8154 0.601 0.459 0.4162 0.941 0.530 0.6274 0.5458 0.313
valu 7 4 9 2 4
e
* = significant at 1%, **= significant at 5%, and ***= significant at 10%
Accountability ranges from 0 (least accountable) to 100 (most accountable)
Corruption ranges from 0 (most corrupt) to 100 (most clean)
Participation ranges from 0 (least participatory) to 100 (most participatory)

The table above reveals that accountability is an important governance measure that
associates significantly with several poverty indicators. The significant associations
have the correct expected signs. The accountability is negatively associated with under-
five mortality, income poverty, slum dweller, and positively associated with access to
clean water, access to electricity, access to plumbed sanitation, and adult literacy.
Corruption index, which measures the degree of transparency of a country is found to
be negatively and significantly associated with under-five mortality, income poverty,
slum dweller, and positively associated with access to clean water, access to electricity,
access to plumbed sanitation, and adult literacy. Participation rate has no significant
association with any poverty indicator. The accountability variable here is a summary
index of five World Bank governance indicators (excluding the control of corruption),

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 Bukhari Sillah. Poverty reduction and good governance Page 37

correlates 87% with the corruption perception index of Transparency International.

Thus, we can interchangeably use the two indicators to avoid repetitions. We use
graphs to visualize some of the significant associations in table 4.
Figure 1 illustrates the relationship between the accountability and under-5 mortality.
Ordered from the most accountable to the least accountable, it reveals that generally as
countries become less accountable the incidence of infant mortality increases. The most
accountable countries in the observations are United Arab Emirates and Malaysia, and
they have low infant mortality. Benin is an exception, where it is highly accountable but
its infant mortality is very high. The least accountable countries such as Sudan and
Chad face high incidence of infant mortality; Syria is an exception with low
accountability and low infant mortality. These exceptions indicate that governance is
important for the poverty reduction, but it is not a necessary condition; and this will be
further investigated in the empirical analysis.
Figure 1: Accountability versus under-5 mortality
150
100
50
0

Djibouti

Afghanistan
Syria
Kuwait
Maldives
Morocco
Benin

Mali

Chad
U.A.E.
Oman
Suriname
Bahrain

Kazakhstan
Uganda

Gambia

Comoros

Tajikistan

Turkmenistan
Sierra Leone

Algeria

Nigeria
Bangladesh
Mozambique

Guinea-Bissau
Accountability U5M

Figure 2 shows that generally as accountability diminishes in a country, the income

poverty becomes more pervasive. Figure 2 also discloses the complex relationship
between governance and poverty. The most accountable country cannot be the country
with the highest incidence of income poverty, and the least accountable country cannot
be the country with the least incidence of income poverty. But, relatively higher
accountable country can have higher incidence of income poverty. For example,
Senegal is more accountable than Morocco and Azerbaijan, and yet these two countries
have lower income poverty than Senegal has. That is, it takes more than governance to
fight poverty.

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 Bukhari Sillah. Poverty reduction and good governance Page 38

Figure 2: Accountability versus income poverty

100
80
60
40
20
0

Accountability incomepoverty $1.9

The relationship between governance and poverty becomes highly blurred when we
look at figure 3. In this figure even least accountable countries appear to have high adult
literacy. Table 3 does give a significant positive correlation between accountability and
adult literacy. Thus, the figure should have shown the adult literacy to diminish when
accountability decreases.
Figure 3: Accountability versus literacy
100
90
80
70
60
50
40
30
20
10
0

Accountability literacy

In figure 4, the negative relationship between accountability and urban slum dwellers
becomes more evident as the accountability decreases substantially.

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 Bukhari Sillah. Poverty reduction and good governance Page 39

Figure 4: Accountability versus slum dweller

100
80
60
40
20
0

Accountability Slum dweller

The significant associations found in table 3 can all be graphed visually. But since the
results are not substantially different from table 3 and the four graphs above, it suffices
to derive conclusions from table 3 and the four graphs. The analysis in this sections
proves that accountability and corruption are associated with several poverty measures,
and they have correct significant signs of associations. Accountable and corruption-free
governments stand a better chance to reduce under-five mortality, income poverty, and
number of slum dwellers and increase adult literacy, access to clean water and
electricity. This fight against poverty requires resources as a necessary condition and a
discipline in terms of good governance as a sufficient condition. In figure 5, we present
the visualized relationship between World Bank accountability index and the corruption
index of the Transparency International. They are found to be significantly correlated at
87.21%. Thus, the relationships found between accountability and poverty indicators
can be generalized to present the relationships between corruption and the poverty
indicators to avoid repetitions.
Figure 5: Accountability and corruption
70
60
50
40
30
20
10
0
Kyrgyz…
CÔTE…
Somalia

Djibouti
Afghanistan
Chad

Niger

Benin
Morocco

Kuwait

Qatar
Turkmenistan

Tajikistan

Uganda
Kazakhstan

Bahrain
Nigeria

Algeria
Comoros

Indonesia

Suriname
Oman
Libya

Bangladesh
Guinea-Bissau

Lebanon
Mozambique

Accountability corruption -IP

Empirical Analysis
The paper argues that real per capita GDP growth is a necessary condition for poverty
reduction but not sufficient. The sufficient condition is the good governance. That is, no
matter what economic growth is recorded in an economy, if it is not accountable,
participatory and free from corruption, poverty will not be reduced.

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 Bukhari Sillah. Poverty reduction and good governance Page 40

The model is specified using cross- sectional data for the year 2014.
Pit  f Yit ,Vit , Cit , Ait 
P = poverty index (to be alternated among income poverty, inequality poverty, sanitation
poverty, water poverty, health poverty, education poverty, living condition poverty and
energy poverty as data may permit)
Y = real per capita GDP, which is treated here as a control variable
V= voter turnout as a percentage of voting age population
C = corruption perception index
A = accountability index
This relationship can specified as
Pit    1Yit   2 Ait   3Cit   4Vit  uit
Assuming the error term u is normally independently and identically distributed, and the
explanatory variables are random and weakly exogenous, we can estimate the
parameters of the regression and conduct inferential tests. From the correlation matrix
in table 3, we identify that the participation variable is irrelevant for the poverty
indicators, and it can be consequently dropped from the model. The accountability
variable and the corruption variable are found to be highly and significantly correlated at
87.21%. Including both explanatory variables in the model can result in a
multicollinearity problem. To correct for the irrelevance of participation variable and
multicollinearity problem, the above model is reduced to as
Pit    1Yit   2 Ait  eit
The estimation results of the reduced model are presented in table 4

Table 4: Regression results of Poverty and Governance

Under MPI Incom Inequa Slum Acces Access Acces literac
Dependent -5 e lity dwelle s to to s to y
Variable mortali povert r Clean Electric Sanitat
Explanatory ty y $1.9 water ity ion
Variable
Per coeffici - - - - - .00079 .00272 .00297 .0016
capita ent .0029 .0072 .00633 .00035 .0046 7*** 18** 7* 32**
GDP 11** 1* *
3 6**
.0011002 .0018089 .0019064 .0004132 .0010569 .0010219
Standa .0015 .00069 .0007
rd 656 43 979
error
P- 0.011 0.000 0.001 0.615 0.020 0.061 0.013 0.006 0.048
value
Accounta coeffici - .0048 - .04325 - .37276 .29135 .27973 .2884
bility ent .7443 053 .23337 83 .5832 5* 3 68 012
52** 4 7**
.3429003 .3049283 .2757153 .1328716 .3183107
Standa .1941 .09778 .32200 .2535
rd 543 38 68 197
error
P- 0.036 0.980 0.450 0.662 0.043 0.008 0.370 0.385 0.263
value

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 Bukhari Sillah. Poverty reduction and good governance Page 41

constant coeffici 86.35 33.83 50.256 36.938 69.44 69.259 52.246 42.640 57.94
ent 18* 15* 75* 65* 08* 65* 62* 29* 48*
Standa 9.687 5.072 8.1247 2.5222 7.091 3.8621 9.0835 9.1384 7.169
rd 504 393 49 02 963 83 08 56 39
error
P- 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
value
R- 0.360 0.426 0.4628 0.0101 0.397 0.3733 0.2279 0.2740 38
squared 6 9 4
F-statistic 12.13 13.04 12.92 0.14 10.22 11.91 6.49 7.92 5.58
(0.000 (0.000 (0.000 (0.867 (0.000 (0.000 (0.003 (0.001 (0.007
1) 1) 1) 4) 4) 1) 4) 2) 9)
Observati 46 38 33 31 34 43 47 45 38
ons
* = significant at 1%, **= significant at 5%, and ***= significant at 10%

As expected apart from inequality variable, per capita GDP is found to be a significant
determinant for all poverty variables. Per capita GDP growth can significantly reduce
under-five mortality, reduce poverty in its multidimensional aspects, reduce income
poverty, reduce the number of urban population living in slums, increase access to
clean water, plumbed sanitation, access to electricity and increase adult literacy.
Expansion of per capita GDP is a necessary condition for the fight against poverty.
Governance is not found to be relevant for all poverty dimensions. But, it is relevant for
the under-five mortality, number of slum dwellers and access to clean water. As the
degree of accountability increases, the incidence of under-five mortality drops, number
of urban people living in the slums dwindles, and the access of the population to the
clean water increases. Is there 400% governance dividend in the data as found by
Kaufman (2000), which states that improvements in governance result in four fold drop
in under-five mortality? Using the coefficients in table 4, we calculate the average
elasticities to answer this question.
Table 5: Average elasticity between poverty indicators and the explanatory
variables
Variable Under-5 MPI Incom Inequalit Slum Acces Access Access literac
mortalit e y dwelle s to to to y
y povert r Clean Electricit Sanitatio
y $1.9 water y n

Per capita -0.165** - -0.416* -0.018 - 0.031** 0.126** 0.159** 0.077**

GDP 0.552 0.172** *
*
**
Accountabilit -0.384 0.006 -0.228 0.033 - 0.134* 0.119 0.134 0.115
y 0.331**
* = significant at 1%, **= significant at 5%, and ***= significant at 10%

There is no 400% governance dividend in the data. But, governance does impact
significantly on some poverty variables. Ceteris paribus, 1 per cent increase in

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 Bukhari Sillah. Poverty reduction and good governance Page 42

accountability can lead to 0.38% drop in under-five mortality, 0.331% drop in the
number of slum dwellers, and 0.13% increase in population access to clean water. The
magnitude of responsiveness of under-five mortality to a change in accountability is
larger than its responsiveness to a change in per capita GDP. Similarly, number of slum
dwellers and the population access to clean water respond in a greater magnitudes to a
change in accountability than to a change in per capita GDP. This implies that small
changes in governance can lead to substantial improvements in poverty variables; and
thus governments should make efforts to adopt good governance and be able to
attain both necessary and sufficient conditions to win the fight against poverty. Contrary
to the findings of Narayan (1995) and Sham et al. (1995), the participation variable is
found in this paper to be irrelevant in explaining variations in poverty variables. The
reason for the different results could be due to the definition of the participation. In their
studies, the participation variable is at micro-level context, while it is here defined at a
macro-level context. That is participation of the beneficiaries in the decision making of
the projects at community levels is very vital and it contributes to poverty reduction of
the beneficiaries. But, participation in elections to choose representatives in the decision
making of the projects at national levels is found to bear no impact on the poverty
reduction.
Conclusions and policy implications
Good governance is a key component of the sustainable development goals. IDB
member countries are doing well enough on good governance, as the performance of
majority of them on accountability and corruption is below the world average. Several
development institutions have included good governance in their agenda. It is part of
IDB’s 1440 mission, and it should activate it in when financing the fight against poverty.
Many countries derailed off their targets of poverty reductions not only because they did
not have the financial resources, but also because they did not perform well enough on
good governance. It is found in this paper that corruption eats away the vital resources
that supposed to go into the fight against poverty. Corrupt countries see their infant
mortality increase, income poverty spreads and sticks, increasing number of urban
population become slum dwellers; and water, electricity and education become
reserved for the lucky few. When countries free voices to hold the representatives
accountable, implement regulation and rule of law equitably, and maintain efficiency and
effectiveness and stability, then the limited economic resources will be used correctly to
fight poverty. Accountable and corruption-free governments are found to reduce poverty
better than the unaccountable and corrupt governments. The fight against poverty
needs two vital conditions as the findings here indicate. They are expansion of per
capita GDP as a necessary condition, and good governance for the administration of
the economic resources as sufficient condition. Good governance is found to be
particularly relevant for the reduction of under-five mortality, improvement of living
conditions (reduction of urban slum dwellers) and increased access to clean water. This
implies that development institutions and agencies should set governance targets when
providing financial resources in the fight against poverty. This fight is won and sustained
not only with provisions of financial resources but also with attainment of good
governance in terms of accountability and transparency.

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