Decentralisation From Subsidiarity to Success

AER Press conference Bruxelles, May 18th, 2009

Prof. Dr. Urs Mller Director BAKBASEL

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Content

Aim of the project:

Look for links between the degree of autonomy or decentralisation within a jurisdiction (territory, e.g. country or region over which legal or other authority extends) and the jurisdictions economic development.

1. How do we measure decentralisation?

2. What is the impact of decentralisation on economic performance? 3. What is the impact of decentralisation on innovation? 4. What have we learned?

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The Decentralisation Index Family

Source:
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BAKBASEL

The Decentralisation Index

80

70 70 66 64 60 62 58 54 54 51 50 50 50 49 48 46 45 45 44 43 42 42 42

41

41 38 36 34 33 31 31 25

40

30 Decentralisation Index

20

10

0 CH D

E B-BCB-DG

I-F

NL CZ I-L

UK PL

Source:
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BAKBASEL

FIN S-VN S-VG

P RO

DK IRL NO HR SK LT

LV GR EST BG

Qualitative vs. Quantitative

90

80

CH

70
DK S-VN S-VG E A I-L NL I-F H UK PL F SK LV IRL LT CZ

B-D G B-BC

D 45

60
FIN NO

50

40

30
BG EST

RO P

Quantitative Decentralisation (Index) 20

GR HR

10 20 25 30 35 40 45 50 55 60 65 70

Qualitative Decentralisation (Index)

Source:
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Implementing vs. Decision making

100
GR

90
FIN HR

PL LT

80
BG

H IRL P F NL NO DK UK CZ I-F

D CH

70 60 50
EST RO S-VN

B-BC, B-DG E I-L 45

40
LV

implementing power (Index) 30

S-VG

20

10 10 15 20 25 30 35 40 45 50 55 60

decision making power (Index)

Source:
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BAKBASEL

An example: Bulgaria vs. Switzerland

Blgarija

Schweiz Suisse Svizzera

Source:
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BAKBASEL

2. What is the impact of decentralisation on economic performance?

Why should there be an impact?

Two transmission channels

Effectiveness:

Lower tiers are better able to do the right things.

Efficiency:

Lower tiers are better able to do the things right.

This will result in higher welfare.

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Trade off between centralisation and decentralisation

power and competences indicators for de-/centralisation

decentral

central

preferences (spatial)

heterogeneous

homogeneous

spatial externalities

negligible

substantial

economies of scale

none / low

relevant / high

Source:
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BAKBASEL

Decentralisation and GDP per capita

40
FIN-A US CH S-VG DK NL AT F FIN-EP NO S-VN E NZ GR I-F CZ UK I-L BEL D CA

35

IR

30

25

20
PT-N corrected)

PT-M EST SK LV BG LT HR H PL

15

10 GDP per capita (average 2001-2006)

RO

(US$ at constant 2000 prices and exchange rates, PPP

0 5 15 25 35 45 55 65 75

Decentralisation Index

Source:
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Regression results for GDP per capita

Dependent variable: GDP per capita (average 2001 to 2006) country data set regional data set

Total

Quantitative Decentralisation 0.18510 *** 0.04927 **

Qualitative Decentralisation 0.24208 *** 0.10115 ***

0.24662 *** 0.09459 ***

*** means statistical significance on the 1 percent error level.

Source:
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Decentralisation and GDP growth

10%
LV EST LT

8%

RO

6%
BG SK HR IR H GR S-VG PL corrected) NZ NO PT-M FIN-EP S-VN UK DK F real GDP grow th in % p.a. (2001-2006) PT-N NL I-L I-F D E US AT BEL CH CA CZ

4%

2%

0%
(US$ at constant 2000 prices and exchange rates, PPP 5 15 25

35

45 FIN-A

55

65

75

-2%
Decentralisation Index

Source:
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Regression results for GDP growth

Dependent variable: GDP growth (average 2001 to 2006) country data set regional data set

Total

Quantitative Decentralisation 0.00122 ** 0.00102 ***

Qualitative Decentralisation 0.00283 ** 0.00272 ***

0.00196 ** 0.00182 ***

**, *** respectively means statistical significance on the 5 and 1 percent error level.

Source:
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Which parts of decentralisation are of special relevance?

Qualitative decentralisation (primarily competences) is at least as relevant

as quantitative decentralisation (primarily money)

Relevant is to have the decision making power, not the task of

implementation
Most relevant single aspects:

- strong regional impact on the national legislation process - the presence of a regional constitution - high independence from the national authorities
Most relevant policy fields (decision making power):

- Infrastructure - Recreation & Culture - Education & Research

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3. What is the impact of decentralisation on economic innovation?

Innovation is the application of ideas and/or knowledge to increase

productivity.

power and competences indicators for de-/centralisation decentral preferences (spatial) spatial externalities economies of scale heterogeneous negligible none / low central homogeneous substantial relevant / high

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Why should there be an impact?

Two transmission channels

1. 2.

Effectiveness Efficiency

Two competing ideas

1. 2.

Concentration Specialisation

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Decentralisation vs. Patents

0.30

0.25

0.20

0.15

0.10

0.05

0.00 0 10 20 30 40 50 60 70 80

Source:
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Decentralisation vs. Shanghai

0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 0 10 20 30 40 50 60 70 80

Source:
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BAKBASEL

Decentralisation vs. Publications

8 7 6 5 4 3 2 1 0 0 10 20 30 40 50 60 70 80

Source:
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Regression results for innovation

Dependent variable:
Patent density Shanghai score density Publication density

Total 0.00111 *** 0.00012 * -0.01464 ***

Quantitative Decentralisation 0.00086 *** 0.00006 -0.01116 **

Qualitative Decentralisation 0.00084 *** 0.00013 ** -0.01125***

Regional data set

*, **, *** respectively means statistical significance on the 10, 5 and 1 percent error level.

Source:
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Interpretation

Decentralisation matters

There is a strong positive impact of decentralisation on patents

(specialisation for applied research)

There is a strong negative impact of decentralisation on publications

(concentration for theoretical research)

There is a weak positive impact of decentralisation on the quality of

universities (primarily from quantitative decentralisation)

The most relevant aspect is financial decentralisation The most relevant policy field is Education & Research

Decentralised regions have a higher innovation capacity

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4. What have we learned? Summary results

Country data set (33) GDP per capita GDP growth Patent density Shanghai score points density Publication density +++ ++

Regional data set (234) +++ +++ +++ + ---

+, ++, +++ respectively means positive statistical significance on the 10, 5, 1 percent error level. --- means negative statistical significance on the 1 percent error level.

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4. What have we learned?

Do regions with more competences develop better than others? Are countries with a higher degree of decentralisation economically more successful than centrally governed countries? The answer is YES. Theory: Decentralisation increases both efficiency and effectiveness. Empirical results: Decentralisation increases economic performance (both GDP per capita and GDP growth). Decentralisation also increases the quality of universities and the research output of applied research (which is essential for long term growth).

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Political conclusions

Regions with more competences develop better than others.

Countries with a higher degree of decentralisation are economically more

successful than centrally governed countries.

Giving more competences to sub-national tiers fosters the economy.

Most relevant aspects for the regions:

More influence of the regions on the national level More independence of the regions from the national level More financial competences and resources for the regions More competences in (1) recreation and culture, (2) infrastructure, (3) education and research, and (4) health care.

The application of the subsidiarity principle is a key to economic success.

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Sources

All information is drawn from a study commissioned by the Assembly of European Regions and researched and produced by BAK Basel Economics The underlying data are drawn from:
Performance data: International Benchmarking Database by BAKBASEL

Location factors: International Benchmarking Database by BAKBASEL

Decentralisation data:

Qualitative data: Survey conducted in this study commissioned by AER Quantitative data: From various international statistical sources

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