How a Good Governance of Institutions Can Reduce Poverty and Inequality in Society for Supporting a Sustainable Economic Development?

Abstract

The main aim of this study is to analyze how institutional change, measured with a set of governance indicators, can reduce poverty and inequality in society that are essential prerequisites for supporting sustainable economic growth of nations. This study investigates 191 countries to explain the relationships between institutional variables and socioeconomic factors of nations with different level of development. Central findings suggest that a good governance of institutions supports a reduction of poverty and income inequality in society. In particular, results here show that the critical role of good governance for reducing inequality and poverty has a higher effect in countries with stable economies than emerging and fragile economies. Overall, then, this study reveals that countries should focus on institutional change directed to improve governance effectiveness and rule of law that can reduce the poverty and inequality, and as a consequence support the long-run socioeconomic development of nations.

Keywords: Institutional Change; Governance Indicators; Economic Governance; Government Effectiveness; Rule of Law; Income Inequality; Equality; Poverty; Developing Countries; Institutional Framework; Governance Approach; Institutions; Society and Institutions; Institutional Theory; Institutional Development.

JEL Classification: B15, I30, O43, O49