Is the Millennium development goal on poverty still achievable? The role of institutions, finance and openness

Drawing upon new World Bank poverty data, the analysis examines the feasibility of attaining the Millennium Development Goal of halving extreme poverty (MDG1) when the interrelationships between finance, institutions, trade liberalization, growth and poverty are taken into account. The authors' econometric results suggest a slowing down of poverty reduction in the more recent years since 2000. They also confirm: the role of better institutions in income growth, poverty reduction, trade openness and financial development; the role of financial development in economic growth; and the positive effect of capital liberalization on financial development. Simulations for different regions show that MDG1 is attainable in most regions if the historical growth rate is maintained over 2006-15. However, improvements in institutional quality are crucial for halving extreme poverty in sub-Saharan Africa. © 2010 International Development Centre, Oxford.