By Bardhan, P., 2002


Our discussion begins with a description of why decentralization poses some different issues in the institutional context of developing and transition countries and, thus, why it may sometimes be hazardous to draw lessons for them from, say, the experiences of U.S. states and city governments. We try to give the  avor of some new theoretical models that extend the discussion to political agency problems that may resonate more in the context of developing and transition economies. We then refer to some of the ongoing empirical work in evaluating the impact of decentralization on delivery of public services and local business development. Decentralization has undoubted merits and strengths. However, the idea of decentralization may need some protection against its own enthusiasts, both from free market advocates who see it as an opportunity to cripple the state and from those anarcho-communitarians who ignore the “community failures” that may be as serious as the market failures or government failures that economists commonly analyze.

By Rodríguez-Pose, A. and Ezcurra R., 2009


This paper looks at the relationship between fiscal and political decentralization and the evolution of regional inequalities in a panel of 26 countries – 19 developed and 7 developing – for the period between 1990 and 2006. Using an instrumental variables method, it finds that whereas for the whole sample decentralization is completely dissociated for the evolution of regional disparities, the results are highly contingent on the level of development, the existing level of territorial inequalities, and the fiscal redistributive capacity of the countries in the sample. Decentralization in high income countries has, if anything, been associated with a reduction of regional inequality. In low and medium income countries, fiscal decentralization has been associated with a significant rise in regional disparities, which the positive effects of political decentralization have been unable to compensate. Policy preferences by subnational governments for expenditure in economic affairs, education, and social protection have contributed to this trend.

By Petrakos, G., Rodríguez-Pose, A. and Rovolis, A. (2005) 


In this paper we challenge the ability of the conventional methods initiated by Barro and Sala-i-Martin in the early 1990s to detect actual convergence or divergence trends across countries or regions and suggest an alternative dynamic framework of analysis, which allows for a better under- standing of the forces in operation. With the use of a SURE model and time-series data for eight European Union (EU) member states, we test directly for the validity of two competing hypotheses: the neoclassical (NC) convergence hypothesis originating in the work of Solow and the cumulative causation hypothesis stemming from Myrdal's theories. We also account for changes in the external environment, such as the role of European integration on the level of regional disparities. Our findings indicate that both short-term divergence and long-term convergence processes coexist. Regional disparities are reported to follow a procyclical pattern, as dynamic and developed regions grow faster in periods of expansion and slower in periods of recession. At the same time, significant spread effects are also in operation, partly offsetting the cumulative impact of growth on space. Similar results are obtained from the estimation of an intra-EU model of disparities at the national level, indicating that the forces in operation are independent of the level of aggregation. Our findings challenge the view of economic growth as the main driver for a reduction of regional disparities and contribute to the growing scientific evidence that points towards the need to rethink current EU-wide regional development policies.

By Rodríguez-Pose, A. and Gill, N., 2006


Although the relationships between rising trade, economic growth, and international disparities have been well studied, those between trade and intranational disparities remain underexplored. In this paper, we present a theoretical formulation and empirical evaluation based on eight major world economies, finding that the link between trade and regional disparities is evidenced most strongly when sectoral shifts in trade composition are considered. As primary sector goods trade loses importance in the composition of total trade, regional disparities are likely to increase. This effect may have a greater negative impact on developing countries because the initial magnitude of intranational disparities tends to be greater in the developing world and its share of agricultural trade has historically been higher.