Decentralisation, Corruption and Economic Development

35 Pages Posted: 14 May 2007

See all articles by Sebastian Freille

Sebastian Freille

Universidad Católica de Córdoba; Universidad Nacional de Córdoba - Department of Economics

M. Emranul Haque

University of Nottingham

Richard Kneller

University of Nottingham

Date Written: March 16, 2007

Abstract

This paper studies the relationship between corruption and decentralisation from a macroeconomic perspective. Providing a macroeconomic analysis may help to understand better the links and channels between corruption, decentralisation and economic development. The analysis presented in this paper is unique in that provides an explicit formulation of the relationship between corruption, decentralisation and economic development. We bring together the theoretical and empirical predictions of both the traditional and modern fiscal federalism theories and find that the effect of decentralisation on development depends crucially on the existence and extent of corruption. Without corruption, decentralisation is unambiguously the best outcome for development. However, if corruption is pervasive, decentralisation may be associated to lower capital accumulation than centralisation. This result is more likely to be observed in developing countries with weak local political institutions and significant information asymmetries between the government and local administrations.

Keywords: Decentralisation, Corruption, Growth, Political Institutions

JEL Classification: H77, O11, H7, L16

Suggested Citation

Freille, Sebastian and Haque, Mohammad Emranul and Kneller, Richard, Decentralisation, Corruption and Economic Development (March 16, 2007). Available at SSRN: https://ssrn.com/abstract=985638 or http://dx.doi.org/10.2139/ssrn.985638

Sebastian Freille (Contact Author)

Universidad Católica de Córdoba ( email )

Av. Armada Argentina 3550
Córdoba, AR Córdoba 5010
Argentina

Universidad Nacional de Córdoba - Department of Economics

Avenida Valparaiso s / n
Ciudad Universitaria
Córdoba
Argentina

Mohammad Emranul Haque

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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