Bruxelles Presentation

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id832

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: BAKBASEL


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Qualitative vs. Quantitative

CH

D

B-BC

B-DG

E

A

I-FNL

CZ

I-L

UK

PL

S-VG

S-VN

FIN

H

RO

P

F

DK

IRL

NO

HR

SK

LT

LV

GR

ESTBG

10

20

30

40

50

60

70

80

90

20 25 30 35 40 45 50 55 60 65 70

Qualitative Decentralisation Index

Quantitative Decentralisation (Index)

45

Source: BAKBASEL


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Implementing vs. Decision making

CH

D

B-BC, B-DG

E

A

I-F

NL

CZ

I-LUK

PL

S-VG

S-VN

FIN

H

RO

P

F

DK

IRL

NO

HR LT

LV

GR

EST

BG

10

20

30

40

50

60

70

80

90

100

10 15 20 25 30 35 40 45 50 55 60

decision making power (Index)

implementing power (Index)

45

Source: BAKBASEL


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An example: Bulgaria vs. Switzerland

Blgarija

SchweizSuisseSvizzera

Source: BAKBASEL


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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

relevant / highnone / loweconomies of scale

substantialnegligiblespatial externalities

homogeneousheterogeneouspreferences (spatial)

centraldecentral

power and competences

indicators for de-/centralisation

Source: BAKBASEL


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Decentralisation and GDP per capita

Source: BAKBASEL

NZ

CA

RO

LVLT HR

EST

BG

US

UK

SK

S-VN

S-VG

PL

PT-MPT-N

NL

NO

IR

I-L

I-F

H

GR

FIN-EP

FIN-A

F

E

DK

D

CZ

CH

BEL

AT

0

5

10

15

20

25

30

35

40

5 15 25 35 45 55 65 75

Decentralisation Index

GDP per capita (average 2001-2006)

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

corrected)


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Decentralisation and GDP growth

Source: BAKBASEL

NZ

AT

BEL

CH

CZ

D

DK

E

F

FIN-A

FIN-EP

GR

H

I-F

I-L

IR

NO

NL

PT-N

PT-M

PLS-VG

S-VN

SK

UKUS

BG

EST

HR

LT

LV

RO

CA

-2%

0%

2%

4%

6%

8%

10%

5 15 25 35 45 55 65 75

Decentralisation Index

real GDP grow th in % p.a. (2001-2006)

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

corrected)


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Regression results for GDP growth

Source: BAKBASEL

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

0.00283 **

0.00272 ***

0.00122 **

0.00102 ***

0.00196 **

0.00182 ***

country data set

regional data set

QualitativeDecentralisation

QuantitativeDecentralisation

TotalDependent variable:GDP growth(average 2001 to 2006)


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Which parts of decentralisation are of special relevance?

Qualitative decentralisation (primarily competences) is at least as relevantas 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 increaseproductivity.

relevant / highnone / loweconomies of scale

substantialnegligiblespatial externalities

homogeneousheterogeneouspreferences (spatial)

centraldecentral

power and competences

indicators for de-/centralisation


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Why should there be an impact?

Two transmission channels

1. Effectiveness

2. Efficiency

Two competing ideas

1. Concentration

2. Specialisation


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Decentralisation vs. Patents

Source: BAKBASEL

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0 10 20 30 40 50 60 70 80


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Decentralisation vs. Shanghai

Source: BAKBASEL

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0 10 20 30 40 50 60 70 80


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Decentralisation vs. Publications

Source: BAKBASEL

0

1

2

3

4

5

6

7

8

0 10 20 30 40 50 60 70 80


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Regression results for innovation

Source: BAKBASEL

Regional data set

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

0.00084 ***

0.00013 **

-0.01125***

0.00086 ***

0.00006

-0.01116 **

0.00111 ***

0.00012 *

-0.01464 ***

Patent density

Shanghai score density

Publication density

QualitativeDecentralisation

QuantitativeDecentralisation

TotalDependent variable:


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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

+++

+

---

Patent density

Shanghai score points density

Publication density

+++

+++

+++

++

GDP per capita

GDP growth

Regional data set (234)Country data set (33)

+, ++, +++ 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 moresuccessful 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

Documents

Bruxelles Presentation