drivers of growth in fragile states
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in school enrollment (and even greater gains may be expected with a few years’ lag). Primary school drop-out rates decrease significantly in CP–HIPCs as well (Crespo Cuaresma and Vincelette 2008). Gains are less pronounced in other areas of human development. Macroeconomic indicators are also weaker in fragile HIPCs (figure 4.2), and growth rates of fragile states are much more volatile than those of CP–HIPCs (figure 4.3). Half of the fragile HIPCs experienced negative growth until the mid-1990s. All fragile states have undergone periods of prolonged contraction, usually around the time of conflict and political instability. Moreover, the average growth rate of income in countries that have gone through the HIPC Initiative has been higher than that of fragile states, especially given the lower dependence on resource exports in CP–HIPCs. Resource-rich primary commodity exporters have benefited from high commodity prices, fueling their output growth. Similarly, total investment as a share of output has been roughly 50 percent lower in fragile HIPCs than in other fragile countries and CP–HIPCs. Fragile non–HIPCs have demonstrated stronger improvement of their institutional environment than have fragile HIPCs, whose average CPIA rating remained unchanged in the past 25 years. This rating has stayed well below that of CP–HIPCs. The quality of governance institutions is also lower in fragile HIPCs than in other fragile states (figure 4.4). On average, along all six dimensions of the World Bank governance indicators, fragile non–HIPCs fare better than fragile HIPCs. The largest differences (also carrying statistical significance) are on the indicators of political stability and government effectiveness. No significant differences are found on the dimension of control of corruption, hinting at the complexity of removing patronage and vested interests of groups frequently linked to lucrative opportunities in the extractive industry. Although governance quality in HIPCs did not play a significant role in the decision of creditor countries to forgive debt in the 1990s, CP–HIPCs had notably better governance than any either group of fragile states (Freytag and Pehnelt 2009). This suggests that the presence of fragility is associated with lower-quality governance and that alleviation of the debt burden in poor developing countries has been associated with improving not only the availability of financial resources of these countries but also the quality of their governance institutions.
Data and Methodology To ascertain if the determinants of income growth differ in HIPCs, fragile non–HIPCs, and CP–HIPCs, we collected data for the period 1984– 2004 and used panel data for the five resulting four-year nonoverlapping subperiods. Growth rates are therefore defined as averages over these