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This study provides evidence of the triangular relationship between governance quality, foreign direct investment, and economic growth. Unlike previous studies in the governance-foreign direct investment-growth literature, this study employed the panel vector autoregressive model to examine the impact of governance quality and foreign direct investment on economic growth. Moreover, we used the impulse response function tool, which was developed in the same context, to better understand the reaction of the two main variables of interest, foreign direct investment, and economic growth, after shocks to the governance quality variable. Finally, the analysis was completed by the variance decomposition of all variables. These analyses were conducted for 102 developing countries from 1996 to 2014. Overall, the results show that inward foreign direct investment has a significant impact and can strongly encourage economic growth. These results indicate that the quality of governance in developing countries does not affect foreign direct investment and economic growth.

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.

Over the last few decades, many economies in sub-Saharan Africa have experienced much faster economic growth than other parts of the world. However, many of these economies have not experienced significant poverty reduction. Several factors such as the quality of governance may limit the expected effects of economic growth on poverty. This paper examines the triangular relationship between extreme poverty, governance quality, and economic growth for the sub-Saharan African countries over the period 2010–2019. Compared to the work carried out until now, the novelty of this research lies in using the Panel Threshold Regression (PTR) and Panel Smooth Transition Regression (PSTR) models to determine the optimal level of governance index, which once attained, will make extreme poverty decrease with economic growth and governance quality. We found that the nexus between these three variables is nonlinear. Besides, results show that there exists a statistically negative relationship between governance and extreme poverty above the threshold level of 0.314 for the Global Governance Index (GGI) and 66.9 for the Ibrahim Index of African Governance (IIAG), above which governance quality decreases extreme poverty. The results showed that the economic growth would begin to reduce extreme poverty once governance reaches a threshold level of 0.367 for GGI and 63.2 for IIAG. Better performance of governance also appears to improve economic growth and reduces poverty.

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