ABSTRACT
This chapter studies the relationships between institutions, governance, and poverty. It focuses on formal, state institutions, defined as “the rules of the game in society,” as well as governance, defined as “how the game is played.” After elucidating these definitions, the chapter introduces various measures of the quality of institutions and governance, prioritizing the World Bank’s World Governance Indicators. It surveys the existing scholarly research on how poverty is related to factors such as corruption and property rights. Then it dives more deeply into how institutions impact basic capabilities. The importance of democracy within the capabilities approach is emphasized, regardless of empirical relationships between democracy and development indicators such as economic growth. The chapter argues that democratic deficits are a fundamental institutional dynamic that contributes to poverty. The chapter considers evidence on what shapes institutions and governance, including the “resource curse” and various other short-term and long-term factors. Following a brief review of prominent critiques of the institutional perspective, the chapter concludes by presenting both principles and practices that can help improve institutions/governance to reduce poverty.
