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

Andrés Rodríguez-Pose and Vinko Muštra
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Andrés Rodríguez-Pose: Cañada Blanch Centre and Department of Geography and Environment, 4905London School of Economics, UK
Vinko Muštra: Faculty of Economics, Business and Tourism, 74422University of Split, Croatia
Authors registered in the RePEc Author Service: Andrés Rodríguez-Pose

Environment and Planning A, 2022, vol. 54, issue 8, 1604-1622

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.

Keywords: Decentralisation; quality of government; growth; spatial dependency; regions; EU (search for similar items in EconPapers)
Date: 2022
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Working Paper: The economic returns of decentralisation: government quality and the role of space (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:envira:v:54:y:2022:i:8:p:1604-1622

DOI: 10.1177/0308518X221118913

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