Nonlinear Threshold Effect of Governance Quality on Poverty Reduction in South Asia and Sub-Saharan Africa: a Dynamic Panel Threshold Specification

This paper explores whether there exist nonlinear threshold effects of governance quality on poverty rate. The study data consist of 57 South Asian and sub-Saharan African countries for the period 2010–2019. The dynamic panel threshold model was applied to determine the optimal level of governance index, which once attained, will make the different levels of poverty decrease with governance quality. We found that the nexus between governance quality and poverty is nonlinear. Besides, results show that there exists a statistically negative relationship between governance quality and extreme poverty above the threshold level of 0.2, above which governance quality decreases extreme poverty in South Asian and sub-Saharan African countries. The findings revealed, too, that poverty headcount ratio at $3.20 and $5.50 starts decreasing once governance index reaches a threshold level of 0.62 and 0.70, respectively. The findings are robust and provide circumstantial support for governance to promote economic growth and reduce poverty.