Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
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.