All around the world in matters of governance, decentralization is the rage. Even apart from the widely debated issues of subsidiarity and devolution in the European Union and states’ rights in the United States, decentralization has been at the center stage of policy experiments in the last two decades in a large number of developing and transition economies in Latin America, Africa and Asia. The World Bank, for example, has embraced it as one of the major governance reforms on its agenda (for example, World Bank, 2000; Burki, Perry and Dillinger, 1999). Take also the examples of the two largest countries of the world, China and India. Decentralization has been regarded as the major institutional framework for the phenomenal industrial growth in the last two decades in China, taking place largely in the nonstate nonprivate sector. India ushered in a landmark constitutional reform in favor of decentralization around the same time it launched a major program of economic reform in the early 1990s. On account of its many failures, the centralized state everywhere has lost a great deal of legitimacy, and decentralization is widely believed to promise a range of benee ts. It is often suggested as a way of reducing the role of the state in general, by fragmenting central authority and introducing more intergovernmental competition and checks and balances. It is viewed as a way to make government more responsive and efe cient. Technological changes have also made it somewhat easier than before to provide public services (like electricity and water supply) relatively efe ciently in smaller market areas, and the lower levels of government have now a greater ability to handle certain tasks. In a world of rampant ethnic cone icts and separatist movements, decentralization is also regarded as a way of diffusing social and political tensions and ensuring local cultural and political autonomy. These potential benee ts of decentralization have attracted a very diverse range

https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533002320951037

Decentralization of Governance and Development

We analyze the likelihood of government bailouts of 450 politically connected firms from 35 countries during 1997‐2002. Politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm’s home government. Further, among bailed-out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress.

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Political Connections and Corporate Bailouts

The recent wave of financial globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing countries, a number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, crises that have exacted a serious toll in terms of macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration for developing economies. But much of the debate has been based on only casual and limited empirical evidence.

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Effects of Financial Globalization on Developing Countries: Some Empirical Evidence

Focusing on the examples of Liberia, Nigeria, Sierra Leone and Zaire, this text demonstrates how African rulers hold on to power while severed from foreign aid and subjected to collapsing economies and disappearing bureaucracies.

Warlord Politics and African States

The good governance agenda is unrealistically long and growing longer over time. Among the multitude of governance reforms that “must be done” to encourage development and reduce poverty, there is little guidance about what's essential and what's not, what should come first and what should follow, what can be achieved in the short term and what can only be achieved over the longer term, what is feasible and what is not. If more attention is given to sorting out these questions, “good enough governance” may become a more realistic goal for many countries faced with the goal of reducing poverty. Working toward good enough governance means accepting a more nuanced understanding of the evolution of institutions and government capabilities; being explicit about trade-offs and priorities in a world in which all good things cannot be pursued at once; learning about what's working rather than focusing solely on governance gaps; taking the role of government in poverty alleviation seriously; and grounding action in the contextual realities of each country.

Good Enough Governance: Poverty Reduction and Reform in Developing Countries

Informality: exit and exclusion analyzes informality in Latin America, exploring root causes and reasons for and implications of its growth. The authors use two distinct but complementary lenses: informality driven by exclusion from state benefits or the circuits of the modern economy, and driven by voluntary 'exit' decisions resulting from private cost-benefit calculations that lead workers and firms to opt out of formal institutions. They find both lenses have considerable explanatory power to understand the causes and consequences of informality in the region. Informality: exit and exclusion concludes that reducing informality levels and overcoming the 'culture of informality' will require actions to increase aggregate productivity in the economy, reform poorly designed regulations and social policies, and increase the legitimacy of the state by improving the quality and fairness of state institutions and policies. Although the study focuses on Latin America, its analysis, approach, and conclusions are relevant for all developing countries.

Informality: Exit and Exclusion

With the exception of Sub-Saharan Africa, Latin America and the Caribbean has been one of the regions of the world with the greatest inequality. This report explores why the region suffers from such persistent inequality, identifies how it hampers development, and suggests ways to achieve greater equity in the distribution of wealth, incomes and opportunities. The study draws on data from 20 countries based on household surveys covering 3.6 million people, and reviews extensive economic, sociological and political science studies on inequality in Latin America. To address the deep historical roots of inequality in Latin America, and the powerful contemporary economic, political and social mechanisms that sustain it, Inequality in Latin America and the Caribbean outlines four broad areas for action by governments and civil society groups to break this destructive pattern: 1) Build more open political and social institutions, that allow the poor and historically subordinate groups to gain a greater share of agency, voice and power in society. 2) Ensure that economic institutions and policies seek greater equity, through sound macroeconomic management and equitable, efficient crisis resolution institutions, that avoid the large regressive redistributions that occur during crises, and that allow for saving in good times to enhance access by the poor to social safety nets in bad times. 3) Increase access by the poor to high-quality public services, especially education, health, water and electricity, as well as access to farmland and the rural services. Protect and enforce the property rights of the urban poor. 4) Reform income transfer programs so that they reach the poorest families.

Inequality in Latin America: Breaking with History?

This report examines the precise nature of the required institutional reforms needed to achieve higher sustained rates of growth and to make a dent in poverty reduction and provides a framework for their design and implementation. The more modest objective is to examine how the concepts of the new institutional economics are useful for analyzing and designing institutions and to evaluate how political economy concepts can be used to develop strategies for implementing institutional reforms. Employing some of these concepts, the report demonstrates that sound institutional reform can be technically and politically viable in the following key sectors: banking; capital markets and legal institutions; educational institutions; judicial reforms; and public administration.

Beyond the Washington Consensus : institutions matter

The study focuses on decentralization, referring to the process of returning the political, fiscal, and administrative powers, to sub-national units of government. It examines the decentralization transformation of government structures in Latin America, which, since 1983, has largely transferred power, resources, and, responsibilities, to the local level. Eight cases are reviewed, within a framework for sub-national government, revising the functions, structures, and revenues assigned, and, the strategies to synchronize the elements of reform. The macroeconomic threat is addressed through hard budget constraints, analyzing the outcomes of major decentralized states in Latin America, as well as the subtle risk, that empowered local governments may use their political power to undermine national interests, in benefit of individual constituencies. Furthermore, the accountability of authority is examined, revising what is at stake with the decentralization of education, health care, and, infrastructure, under new municipal powers. It is further suggested, that successful decentralization is dependent on consistent political culture, thus, broad sets of rules affecting political behavior are analyzed, particularly on electoral systems and political parties.

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Beyond the center - decentralizing the State

Addresses concerns about the impact of trade in Latin American and Caribbean economies on natural resources, jobs, and economic development. Cites the experience of Australia, Canada, Finland, Sweden, and the U.S., as well as Latin American countries, to show how successful economies have been built on the basis of primary commodity exports.

Guillermo Perry

Papers

Informality: Exit and Exclusion

Inequality in Latin America: Breaking with History?

Beyond the Washington Consensus : institutions matter

Beyond the center - decentralizing the State

From natural resources to the knowledge economy : trade and job quality