To reduce poverty, developing countries should focus on quality of their institutions, Bryant pair says
September 3rd, 2010
SMITHFIELD, R.I. - Two Bryant University economists have found that the quality of political and legal institutions and economic growth are key in reducing poverty in developing countries.
Edinaldo Tebaldi and Ramesh Mohan, assistant professors of economics at Bryant, found that a robust system to control corruption, an effective government, and a stable political system create conditions that promote economic growth, minimize income distribution conflicts, and reduce poverty.
On the other hand, corruption, ineffective governments, and political instability not only hurt income levels through market inefficiencies, they escalate the incidence of poverty by increasing income inequality as well.
"Institutions - not government spending and financial assistance - are the deep factors affecting poverty and economic performance in developing countries," said Tebaldi and Mohan. "Policies aimed at reducing poverty should first consider improving institutions as a prerequisite for economic development and poverty eradication. Otherwise, transfer and/or aid programs will have limited and short-term effects."
The researchers used eight alternative measures of institutions and the instrumental variable method to come to their conclusion. In order to evaluate the quality of institutions, Tebaldi and Mohan developed a model that takes into consideration a country's early human capital, geographic variables, and origin of legal system. The research team's findings, titled "Institutions and Poverty," were published in the Journal of Development Studies.
A copy of the researchers' paper is available via e-mail. Contact Tracie Sweeney,firstname.lastname@example.org.