Testing an Economic Model of Nonprofit Growth: Analyzing the Behaviors and Decisions of Nonprofit Organizations, Private Donors, and Governments

Abstract

This study draws an economic model of the growth of nonprofit organizations by analyzing the behaviors of three major actors—nonprofit organizations, private donors, and governments—in making decisions on the allocation of limited resources for nonprofit services. Since decisions made by each actor affect resource allocation, it is important to understand what drives these decisions. The model was tested using an unbalanced, 463 panel dataset collected from 28 OECD countries over a 23-year period. The results indicated that macro- and micro-economic trends and government policies framed the decision premises of the three major actors, which led them to leverage the supply and demand for goods and services and, in turn, determined how they allocated limited resources for nonprofit services. This result implies that understanding the interdependencies of all sectors of the economy is critical to comprehending the size and development of the nonprofit sector. Effective management of micro-economic policies and macro-economic stability is necessary. More important, however, is understanding how a decision in one part of the economy will have intended and unintended effects on the nonprofit sector.