Governance and Economic Growth in Pakistan: A Simultaneous Analysis of the Mediating Role of Crime and Poverty

Abstract

Crime is one of the most serious causes of weak governance in Pakistan which reflects failures in law enforcement, judicial efficiency, and institutional accountability and also simultaneously undermining economic stability and development. Despite its importance, crime is treated as a secondary issue and is usually seen rather as a fundamental governance problem in growth related literature. This paper identifies crime as an important transmission channel through which governance affects economic growth in Pakistan and presents an empirical investigation of the simultaneous relationship between governance, crime, poverty, and economic growth using a time series framework and simultaneous equation modeling. The results show that weak governance significantly increases criminal activities which in turn increase poverty and constrain economic growth whereas good governance controls criminal activities and poverty that leads to improve the economic performance. Results further establish the fact that the governance and growth relationship is not only direct but also strongly mediated through crime and socioeconomic factors. It is suggested that governance reforms should give high priority to the control of crime through institutional strengthening, judicial reforms, and enhancement of accountability mechanisms. Reduction of crime needs to be embedded within the governance strategy if sustainable economic growth is to be achieved, because the development prospects of Pakistan continue to remain closely intertwined with its ability to improve its institutional performance and restore public confidence in Govt. institutes.