The role of institutions in poverty reduction : a focus on the productive sectors

The author of this paper contends that institutional development (ID) is critical to growth and sustainable poverty reduction. Although there is no single model for poverty-oriented institutional development, and ID initiatives vary considerably across sectors and nations, important common lessons have been learned about successful institutional development initiatives. The author presents these in terms of six components: (a) forming and strengthening local organizations; (b) supporting institutional pluralism; (c) building links between poverty-oriented institutions; (d) adopting the appropriate organizational structure and encouraging strong leadership; (e) adopting the learning process approach; and (f) mobilizing local resources and the participation of poor people. Both successful and unsuccessful programs are used to illustrate the importance of these components. Institutional investments often require unconventional, potentially costly programs and projects. ID initiatives have been criticized in terms of the costs and benefits of different approaches, the scale on which they can operate, their compatibility with conventional project frameworks, the degree and types of decentralization they require, and their political feasibility. Using case studies from different productive sectors and subsectors, the author illustrates how these objections may be unwarranted and that investments in institutional development can be both economically and politically viable.