Theoretical and empirical evidence from the past two decades shows that socioeconomic development is affected by the quality of governance and its institutions. Traditional factors of production (capital, skilled and unskilled labour, and intellectual human capital) obviously contribute to the growth process, but the residual or total factor productivity incorporates not only technical change, but also organisational and institutional change. Well-functioning and healthy institutions not only affect the rate of economic growth but, moreover, the distribution. If governance structures and supporting institutions are healthy, then the distribution of benefits of growth will be equitable. This chapter will argue that the process by which good economic policies and aggregate economic outcomes are translated into an equitable distribution of wealth and benefits involves the institutions of governance. It addresses the following three questions, and then explores the case of governance and development in Pakistan in some detail:

1. Why is good governance crucial for development?

2. What are the critical success factors essential for achieving development and good governance?

3. What are the channels by which governance affects development?

GOOD GOVERNANCE AND DEVELOPMENT

While it may be difficult to agree on a clear definition of governance, there is a wide consensus that good governance enables the state, civil society and private sector to enhance the well-being of a large segment of the population. According to the World Bank, governance refers to the manner in which public officials and institutions acquire and exercise the authority to shape public policy, and provide public goods and services.