The Pakistan Development Review 45 : 4 Part II (Winter 2006) pp. 761–776 Governance and Pro-poor Growth: Evidence from Pakistan RASHIDA HAQ and UZMA ZIA * 1. INTRODUCTION The issue of governance has gained importance over the last two decades and became a key component of policies for economic development. Good governance acts as a positive force to influence economic growth. A growing amount of available evidence suggests that lack of quality governance hinders growth and investment, and aggravates poverty and inequality. In fact, governance problem foil every effort to improve infrastructure, attract investment, and raise educational standard. As the developing countries are characterised by weak institutions, low growth, poverty and inequality all which translate into low levels of human development. The multiplicative effects of these outcomes result in poverty traps that are extremely difficult to break out. This state of affairs has forced governments to embark on a wide range of reforms in their institutions of governance and economies with the goal of achieving economic growth. Good governance can lead a country to achieve high and sustained economic growth by establishing conducive environment for saving and investment, risk taking, providing incentives to producers, creating certainty in markets, increasing the size of markets by removing barriers to international trade and improvements in competitiveness. Does good governance constitute to pro-poor growth? The concept of good governance has taken central stage in development thinking and practice since the 1990s. It has been increasingly viewed as a key ingredient for development; the decade also witnessed a renewed focus on poverty reduction as the major goal of development. Several reasons account for the increasing attention to governance and institutions by the international development community, among them research findings demonstrating the financial aid effectiveness depends on “a good policy environment”. The lacklustre performance of structural adjustment programme initiated in 1988, political problem and institutional weakness have contributed to the new focus on governance. The emphasis on reforming economies to achieve high rates of economic growth is largely motivated by the fact that economic growth associates with lower poverty rates and improvements in the quality of life. It is assumed that there is a strong link between economic growth and poverty reduction but this relationship does not always hold. It is Rashida Haq <rashida_haq@hotmail.com> and Uzma Zia <uzia05@yahoo.com> are Research Economist and Staff Economist, respectively, at the Pakistan Institute of Development Economics, Islamabad. Authors’ Note: We are indebted to Ms Attiya Yasmin Javid, Research Economist, Pakistan Institute of Development Economics, Islamabad, for her insightful comments on earlier drafts of this paper.