The economic returns of decentralisation: Government quality and the role of space

Abstract

Research on the impact of decentralisation has generally overlooked the fact that the economic returns of transferring powers and resources to subnational tiers of government greatly depend on the quality of the devolved government. Scholarly literature has also neglected that these returns may be similarly affected by the autonomy of neighbouring areas and their government quality. In this paper, we use panel data fixed effects analyses and spatial Durbin econometric models to assess the extent to which the economic returns of political and fiscal decentralisation in the European Union between 2000 and 2015 are mediated by local government quality and that of neighbouring regions. The results suggest that the economic benefits of regional autonomy are greater in regions with a better government quality, while regions with a low quality of government grow less, regardless of their level of decentralisation. The gains of decentralisation mainly accrue through indirect effects, as regions grow more if surrounded by other, more decentralised regions than through their own level of decentralisation. In all cases, local government quality is a powerful driver of growth, irrespective of whether a region is considered individually or in relationship to its neighbours.

The relationship between city size, decentralisation and economic growth

“…(2020), Thanh and Canh (2020), Nantharath et al. (2020) and Rodríguez-Pose and Muštra (2022) find a positive relationship between fiscal decentralisation and economic growth.…”

“…(2017) supports the expectation that fiscal decentralisation will likely improve the quality of governance but also that the quality of governance will also improve the outcomes of fiscal decentralisation providing a self-reinforcing relationship. Rodríguez-Pose and Muštra (2022) suggest that decentralised local governments with high quality governance, in areas with surrounding governments of a similar calibre, encourages competitive learning processes, leading to policy innovations and efficient delivery of goods and services. Thanh and Canh (2020) note that while the growth effect from decentralisation is still controversial, their analysis supports the second-generation view of fiscal decentralisation which focuses on market preservation and development and governance structures.…”

Explaining COVID‐19 vaccine uptake: A spatial sociodemographic study in Turkey

“…A second explanation is the existence of collective learning mechanisms. Rodríguez‐Pose and Muštra (2022) show that being surrounded by local governments used to designing and implementing effective policies can affect policy implementation. In the same vein, in line with some researchers on institutions and the quality of regional governance (Brueckner, 2003; Ezcurra & Rios, 2020), we could consider a hypothetical framework in which neighbouring areas take each other's policies into account when determining their own level of vaccination campaign.…”

Competition and coordination in state intrapreneurialism: The case of South Korea's export of urban expertise

“…Moreover, issues of territorial competition and coordination as these affect state intrapreneurialism extend beyond those surrounding policy objectives, as determined by politics, to implement the longer-standing national territorial architecture of fiscal redistribution and decentralization and devolution of powers that can form a bureaucratic counterpart to political leadership in state intrapreneurialism. In the aggregate, the relationship between government decentralization and devolution and subnational economic performance is far from clear (Rodríguez-Pose and Muštra, 2022). In detail, policy coordination is hampered at the subnational scale by something as simple as a lack of consistency in data availability and collection for the analysis of needs and priorities as well as the monitoring and evaluation of outcomes (Miao and Maclennan, 2019).…”