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The (mis) allocation of public spending in a low income country: Evidence from disaster risk reduction spending in Bangladesh

Azreen Karim and Ilan Noy ()

No 4194, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Rational allocation of limited public resources is critical to achieve the stated aims of government programmes. Here, we focus on the regional allocation of public spending for disaster risk reduction in Bangladesh as a case study to identify the rationale that guides public funding allocations. It is well understood that any government’s public spending decision-making is also affected by considerations other than need, and our objective in this paper is to identify all of the directly observable determinants’ of publicly allocated and realized spending at the local government (sub-district) level. We employ the Heckman two-stage selection model with detailed public finance and other data from 483 sub-districts (upazilas) across the country. While some of our results conform with our priors, our estimations surprisingly find that government does not respond to the sub-district’s risk exposure as a factor affecting the DRR financing mechanism. This variable is consistently counter-intuitively negative and statistically significant. The DRR regional allocations do not seem to be determined by risk and exposure, only weakly by vulnerability, nor even by more transparent political economy motivations. This is surprising, as the Bangladesh DRR program is considered a poster-child of DRR investments.

Keywords: Public spending; Natural disasters; Sub-district; Heckman selection (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2015
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