Sequential Choices Of Decentralization And Economic Growth

Decentralization is a world phenomenon,but growth is not.In order to promote economic growth,the wave of decentralization reform swept across the world.As James Manor(1999)wrote,almost all countries in the world are trying to decentralize to solve the problem of economic growth.The United States,the United Kingdom,Italy and others all allocate power to the lowest level of government that can achieve policy goals(Oates,1999).In developing countries,decentralization reform covers an even wider range and is more powerful.Davoodi and Zou(1996)pointed out that in 75 developing countries and economies in transition with a population of more than 5 million,all but12 countries claim to have implemented the policy of decentralization reform.However,although all countries have implemented decentralization reform in order to promote economic growth,the results of reform are obviously different.In the study of a single country,it is generally believed that decentralization reform promotes China's economic growth(Lin and Liu,2000;Feltenstein and Iwata,2005;Jin and Zou,2005;Jin,Qian,and Weingast,2005;Qiao,Martinez Vazquez,and Xu,2008).Decentralization reform in India,Russia,Spain and Switzerland is also positively correlated with economic growth(Zhang and Zou,2001).Desai,Freinkman,and Goldberg,2005;Gil-serrate and lopez-laborda,2006;Feld,Kirchgassner,and Schaltegger,2005/2010).Xie,Zou,and Davoodi(1999)argued that the decentralization reform in the United States had no significant impact on economic growth,but a number of studies showed that the decentralization reform promoted economic growth in the United States(Akai and Sakata,2002;Stansel,2005).In the research on Ukraine and Germany,decentralization has a negative effect on the increase of economic output(Naumets,2003;Behnisch,Buttner,and Stegarescu,2002).Then why are there different growth performances in different countries? Among the many influencing factors,exogenous variables such as fiscal revenue and expenditure decentralization degree,fiscal self-sufficiency rate and inter-jurisdiction competition are widely studied,but the influence of decentralization process itself on economic growth is ignored.In addition,most existing studies classify decentralization reform into different types,and regard different decentralization types as parallel decentralization modes to study the impact of different decentralization types oneconomic growth.This paper puts different decentralization types into the same decentralization framework for research.The sequence of decentralization is used to analyze the influence of inter-governmental balance of power on the research of Falleti.There is no literature on how the sequence of decentralization affects economic growth.Therefore,this paper studies this based on the practice of decentralization reform in China.China's decentralization reform mainly includes two aspects: administrative decentralization reform(authority power)and fiscal decentralization reform(financial power).Based on the differences in the basic paths of reforms in various provinces,the decentralization sequence can be divided into three types: administrative decentralization reform(A)-fiscal decentralization reform(F),fiscal decentralization reform(F)-administrative decentralization reform(A),the two reforms are going on simultaneously.Inter-provincial decentralization steps and decentralized content are also different.Different decentralization reform practices have brought about different outcomes of decentralization reforms.Therefore,China's regional differentiation and decentralization reform practice provides a good natural experiment for this paper to explore the growth performance of the decentralization sequence.In the empirical analysis,based on the decentralization reform practice and the availability of data in various regions,this paper selects 15 provinces including Heilongjiang Province,Jilin Province,Hubei Province,Jiangxi Province and Gansu Province,and integrates them into counties' level panel data from 2003 to 2009.,using a two-way fixed-effects model for empirical analysis.Decentralization sequence refers to the order of implementation of different decentralization types.On the basis of the county as the basic unit,two or more decentralization sequences may exist simultaneously in one province.The empirical results show that:(1)Overall,A-F decentralization sequence has the greatest effect on economic growth;(2)Implementation in one time is more conducive to economic growth;(3)decentralization with substantial power hinders economic growth instead.(4)Decentralization sequence is inconsistent in different economic development levels.Through empirical analysis and literature study,the above results were respectively analyzed and found that(1)capital formation and accumulation affect economic growth.(2)rational expectations affect government decision-making;(3)the phenomenon of "power curse" exists.(4)fiscal decentralization reform should be given priority in high-income areas,and administrative decentralization reform should be given priorityin middle-income areas.Through this study,it can be found that the difference in the sequence of decentralization does lead to different economic growth performance.First of all,the A-F decentralization sequence complemented by administrative decentralization reform'implementation in one time is the best way to boost economic growth.Secondly,the decentralization process should be alert to the “power curse” problem.Finally,contrary to reality,higher income regions should no longer give priority to administrative decentralization reform,but should choose the F-A decentralization sequence.And the middle income regions should choose the A-F decentralization sequence as the best.Therefore,the research results of this paper have guiding significance to how to carry out decentralization reform in the reform practice of governments at all levels.