The impact of governance on human development: a cross-country analysis
Date
2009-10
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Abstract
This paper explores the link between governance and human development. An essential point of divergence for this study is that it makes use of the Human Development Index in evaluating well-being rather than the more conventional GDP measures. In conducting the study, the group experiments with a series of equations patterned after two basic models. It finds that, while controlling for macroeconomic policies and initial conditions for growth, positive changes in governance have a systematic and significant impact on human development changes. Contrary to the fundings of Sachs, results show that a country's climatic condition is not an important factor in improving human development. Geographic regions prove to be significant in advancing human development. Some macroeconomic policies that effectively alleviate poverty don't have the same impact on development, like openness to trade, for example. While greater openness is appropriate for most economies, some countries are better off limiting trade. Moreover, both the rise in the change in government expenditure and change in inflation have positive impacts on human welfare. This is despite the traditional notion that public spending alone is not a sufficient solution for poor human development. Likewise, findings on inflation are disturbingly in contrast with what was generally anticipated. A number of literatures suggest that greater increases in inflation are correlated with lesser improvements in human development. The challenge for both researchers and policy makers is to go beyond the conventional wisdom, that is, to explore better ways of explaining real- life phenomena. The hope is that this study will prompt future research on human development that relies on measures that comprehensively reflect human well-being.
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Government policy, Human development, Cross-country analysis, Human development index, Macroeconomics policy