Spatial Decentralization and Programme Evaluation: Theory and an Example

Mark M. Pitt and Nidhiya Menon

Oxford Bulletin of Economics and Statistics, 2019, vol. 81, issue 3, 511-539

Abstract: This paper proposes an instrumental variable method for programme evaluation that only requires a single cross‐section of data on the spatial intensity of programmes and outcomes. The instruments are derived from a simple theoretical model of government decision‐making in which governments are responsive to the attributes of places, rather than to the attributes of individuals, in making allocation decisions across space, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process behaves as if it is multi‐stage with respect to administrative districts and sub‐districts. The spatial instrumental variables model is then estimated and tested with a single cross‐section of Indonesian census data. The results offer support to the identification strategy proposed but also highlight some issues affecting validity.

Date: 2019
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