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7 - Decentralization and Business Performance

Published online by Cambridge University Press:  18 February 2019

Jonathan A. Rodden
Stanford University, California
Erik Wibbels
Duke University, North Carolina
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Decisions by individual businesses are critical to the four core theoretical benefits of decentralization: tailoring, monitoring, competition, and accountability. If decentralization is working effectively, we should see evidence of it in the innovation, expansion, and productivity of firms in a given locality; and we should observe more mobile businesses exploiting differences between regions in their location decisions. Despite the clear theoretical role for business performance in the literature, the empirical evidence linking decentralization to business outcomes is thin. In this chapter, I connect the macroeconomic work on decentralization and economic performance with the literature on subnational business performance. I first lay out the major factors that affect business performance, organizing them by when subnational leaders can alter them and businesses can experience them. Next, I delineate the assumptions regarding business activity that underpin the theoretical arguments in favor of decentralization. I conclude by drawing policy implications for developmental interventions, showing when decentralization will stimulate business activity and when it may prove injurious.
Decentralized Governance and Accountability
Academic Research and the Future of Donor Programming
, pp. 144 - 177
Publisher: Cambridge University Press
Print publication year: 2019

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