ABSTRACT
Martinez-Vazquez and McNab (2003) stress that the inconclusiveness of empirical
results on the impacts of decentralization on economic growth might be due to the fact of
assuming a simple direct link between them when there could exist an indirect, or even
both. This suggests the need of evaluating the effects of decentralization on variables that
represent a direct link, and which ultimately will have impacts on economic growth,
representing the indirect link. This humble work undertakes this task by empirically
assessing the direct impact of political and fiscal decentralization on the human
development index (HDI) and economic inequality (Gini Index), postulating positive
relationship between them. Then, the analysis depicts a model that integrates the indirect
and direct impacts between decentralization and economic growth, suggesting that the
impact of decentralization on economic growth is moderated by a specific country’s
economic development. In testing the hypothesized relations, we design simultaneous-
equation models (SEM) with exogenous latent variable and employ cross sectional data
for 68 countries, constructing average values for all analytical variables in the decade
from 1980 to 1999. Preliminary findings report that decentralization has no homogeneous
impact across countries with different economic development neither across variables
.
The implications of this study point at a very sensitive area: poverty alleviation, as
improvement or deterioration of HDI and income inequality are translated into reduction
or increase of poverty respectively.
Convention