Does inter-municipal cooperation help improve local economic performance? – Evidence from Poland

Abstract

This paper aims at testing whether inter-municipal cooperation (IMC) in policies to promote local business development has a positive impact on local economic performance. We analyze panel data covering 1825 Polish municipalities between 2004 and 2017. We use the unemployment rate, the number of firms per 1000 inhabitants and the rate of population growth as proxies for local economic performance. To control for selection into treatment and the role of time-varying covariates, we apply weighted least squares based on inverse-probability of treatment weights as well as two-way fixed effects models with analogous weights. We do not find IMC to impact the number of firms per 1000 inhabitants or the rate population growth. But IMC is found to reduce local unemployment rates by 0.4 percentage points. Our results suggest that the effect is driven by an improved coordination of municipal policies rather than expenditures funded through the union budget.