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Institutions and Pro-Poor Growth: Towards a Framework for Quantitative Analysis

Working papers

Written by Dirk Willem te Velde, Massimiliano Cali, Steve Wiggins

This paper reviews existing quantitative research on the relationship between institutions and economic growth in general, and pro-poor growth in particular. The tools proposed by the Operationalising Pro-poor Growth (OPPG) programme are extremely useful in generating stylized facts about pro-poor growth. However, the OPPG tools in most part do not provide an analysis of the determinants of pro-poor growth. Cross-country econometric methods, which have been the dominant approach in the literature, suffer from weak instrument problems that make it difficult to interpret the role of institutions in economic growth as causal. Furthermore, cross-country regression analysis is based on the implicit assumption of “homogeneity” in the observed relationship across countries, an assumption which seems untenable when considering the context-specificity of the impact of institutions on economic growth. Further quantitative research on institutions and pro-poor growth should address the determinants of the form and functioning of economic institutions and their impact on pro-poor growth, using sub-national units (region/state/village), households and firms as units of analysis.

Kunal Sen, Dirk Willem te Velde, Steve Wiggins and Massimilano Cali