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From Fiscal Decentralisation to Economic Growth: The Role of Complementary Institutions

Author

Listed:
  • Iftikhar Ahmad

    (Assistant Professor, Pakistan Institute of Development Economics (PIDE), Islamabad)

  • Muhammad Zeeshan Arif

    (MPhil scholar, Pakistan Institute of Development Economics (PIDE), Islamabad)

  • Mahmood Khalid

    (Research Economist, Pakistan Institute of Development Economics (PIDE), Islamabad)

Abstract

Decentralisation is theoretically expected to be a platform towards efficient provision of the local public goods and services. This is expected to boost economic growth due to efficient and effective utilisation of scarce fiscal resources. Nevertheless, the existing empirical studies present mixed results on this expected positive relationship among decentralisation and economic growth. Recently, the theories of fiscal federalism have also pressed upon the enabling environment for effective decentralisation; talking explicitly, an enabling institutional setup is required. The current study explores the complementarity between fiscal decentralisation and other institutions for stimulating growth and the study uses rich cross-country panel data for the period 1984 to 2012, covering both the developing and developed countries of the world. The results suggest that positive relationship exist between fiscal decentralisation and economic growth for the developed countries while evidence was not found in the case of developing countries. Further, it was found that fiscal decentralisation and quality institutions are complementary for economic growth.

Suggested Citation

  • Iftikhar Ahmad & Muhammad Zeeshan Arif & Mahmood Khalid, 2016. "From Fiscal Decentralisation to Economic Growth: The Role of Complementary Institutions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 761-780.
    • Handle: RePEc:pid:journl:v:55:y:2016:i:4:p:761-780
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    File URL: http://www.pide.org.pk/pdf/PDR/2016/Volume4/761-780.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal Decentralisation; Institutions; Economic Growth; Panel Data; unequally spaced panel data;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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