The Economic (in)Efficiency of Devolution

Abstract

The recent devolutionary trend across the world has been in part fuelled by claims of a supposed ‘economic dividend’ associated with the decentralization of authority and resources. The capacity of devolved administrations with greater autonomous powers to tailor policies to local preferences, to generate innovation in the provision of policies and public services, and to encourage greater participation and be more accountable is supposed to deliver greater economic efficiency. There is, however, little empirical evidence to substantiate these claims. In this paper we assess the horizontal link between devolution and regional economic growth in six national contexts (Germany, India, Italy, Mexico, Spain, and the USA). Regression analyses are used in order to test whether changes in cross-regional differences in growth patterns within each country can be attributed to changes in levels of regional autonomy. The results suggest that, contrary to the expectations of devolutionists, the degree of devolution is in most cases irrelevant for economic growth and, when it matters—as in the cases of Mexico and the USA—it is linked to lower rather than greater economic efficiency.