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Decentralization (localization) and corruption : new cross-country evidence


  • Ivanyna, Maksym
  • Shah, Anwar


This paper attempts to improve the understanding and measurement of decentralization and its relationship with corruption in a worldwide context. This is done by presenting the conceptual underpinnings of such relationship as well as using superior and more defensible measures of both decentralization in its various dimensions as well as corruption for a sample of 182 countries. It is the first paper that treats various tiers of local governments (below the inter-mediate order of government) as the unit of comparative analysis. In contrast, previous analyses erroneously focused on subnational governments as the unit of analysis which yields invalid cross-country comparisons. By pursuing rigorous econometric analysis, the paper demonstrates that decentralization, when properly measured to mean moving government closer to people by empowering local governments, is shown to have significant negative effect on the incidence of corruption regardless of the choice of the estimation procedures or the measures of corruption used. In terms of various dimensions of decentralized local governance, political decentralization matters even when we control for fiscal decentralization. Further voice (political accountability) is empirically shown to be more important in combating corruption than exit options made available through competition among jurisdictions.

Suggested Citation

  • Ivanyna, Maksym & Shah, Anwar, 2010. "Decentralization (localization) and corruption : new cross-country evidence," Policy Research Working Paper Series 5299, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5299

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    References listed on IDEAS

    1. Artjoms IVLEVS & Jaime DE MELO, 2015. "FDI, the Brain Drain and Trade: Channels and Evidence," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 21, pages 533-551 World Scientific Publishing Co. Pte. Ltd..
    2. Javorcik, Beata S. & Özden, Çaglar & Spatareanu, Mariana & Neagu, Cristina, 2011. "Migrant networks and foreign direct investment," Journal of Development Economics, Elsevier, vol. 94(2), pages 231-241, March.
    3. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
    4. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 318-336, May.
    5. Kugler, Maurice & Rapoport, Hillel, 2007. "International labor and capital flows: Complements or substitutes?," Economics Letters, Elsevier, vol. 94(2), pages 155-162, February.
    6. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    7. Andriamananjara, Soamiely & Schiff, Maurice, 1998. "Regional groupings among microstates," Policy Research Working Paper Series 1922, The World Bank.
    8. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
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    Cited by:

    1. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.

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    National Governance; Subnational Economic Development; Public Sector Corruption&Anticorruption Measures; Banks&Banking Reform; Governance Indicators;

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