Poverty Reduction and Good Governance: Examining the Rationale of the Millennium Development Goals

Whilst the deadline for achieving the Millennium Development Goals ( MDGs) looms large, the outcomes so far have been mixed. This article examines the policy logic that `good governance' leads to poverty reduction, which has been adopted by international agencies in pursuit of the MDGs. This causal relationship is examined through an empirical panel-data estimation using Worldwide Governance Indicators and the poverty headcount ratio in ninety-eight countries. The empirical evidence does not support the hypothesis that good governance leads to poverty reduction. Good governance alleviates poverty only in middle-income countries, not in least developed ones. These findings point to the necessity to devise policies that address poverty directly, rather than through indirect instruments, and highlight the urgent need to address structural inequality in developing countries.