Growth and Decentralization: The Empirics

The few empirical studies which have directly examined the relationship between decentralization and growth come up with mixed results. Zhang and Zou (1997) show that decentralization has a positive and sometimes significant effect on regional economic growth in India. Their 1996 work on China and Davoodi, Xie, and Zou’s (1995) work on the United States, however, finds fiscal decentralization to be associated with lower growth. In a larger sample of developed and developing countries, Davoodi and Zou (1997) find that decentralization has a negative relationship to growth in developing countries and no discernible effect on growth in developed countries. Several methodological problems in these studies discount even these mixed results and much more needs to be done to ensure that the measured decentralization-growth relationship is robust.