Abstract
Decentralization is the fundamental policy variable used to enhance the allocative efficiency through public spending / tax priorities, subject to the local demand. The current study evaluates the impact of the various dimensions of decentralization on the economic growth of Pakistan for the years 1972-2018. Ng-Perron tests and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) were applied to fix the unit root problem in the time series data. To find the cointegration among decentralization, the role of institutions, and economic growth the Autoregressive Distributed Lag Approach (ARDL) was used. The outcomes suggested that tax decentralization is a growth promoting policy. On the contrary, administrative and political decentralization negatively affect the economic growth. The analysis shows that political freedom also has a growth retarding impact on the economy. The current study is useful regarding the policy implications of the process of decentralization.
Highlights
Fiscal decentralization has been a growing trend in the developing and emerging economies over the course of last three decades (Filippetti & Sacchi, 2016)
We argued that decentralization has a stronger effect on the economic performance of Pakistan within an institutional structure which provides a higher level of subnational autonomy
The current study investigates the issue of decentralization for the developing economies in general and focuses on the significant determinants that positively enhance the economic growth of Pakistan
Summary
Fiscal decentralization has been a growing trend in the developing and emerging economies over the course of last three decades (Filippetti & Sacchi, 2016). The other two dimensions of decentralization, that is, administrative and political decentralization have bipolar impacts on economic growth (Schnieder, 2003; Rodríguez-Pose & Ezcurra, 2010). Hardly any study has been examined the impact of fiscal, administrative and political decentralization on the economic performance of Pakistan. The aim of this paper is to explore the impact of decentralization on growth regulated by the presence of political institutions in Pakistan. Decentralized arrangements are those in which the central bodies have a minor role in the management of the day to day affairs of the local bodies and institutions.
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