Poverty, Inequality, and Governance: A Global Perspective

This paper examines poverty and inequality linkages and the role of governance within a global context. It first presents an overview of the global and regional trends in poverty and inequality. Second, the paper briefly discusses the theoretical relationships among growth, poverty and inequality, as well as the role of governance in the linkages. Third, it provides quantitative evidence on the implications of inequality for poverty reduction, and on the importance of governance. Consistent with previous studies, the paper shows that the world has made tremendous progress on poverty and inequality over the past three decades. Poverty reduction was primarily driven by income growth and, in roughly one-half of the global sample, changes in income distribution played a complementary role. These factors, however, differ substantially across countries in their relative roles in explaining the progress on poverty. Finally, the paper uncovers that the quality of governance matters in the fight against poverty, but mostly in its ability to accentuate the responsiveness of poverty to changes in income and/or in inequality. Furthermore, among the governance/institutional measures considered, government effectiveness clearly stands out as the most potent for poverty reduction.