Autonomy possibly favourable for regional economy

Autonomy might have a favourable effect on the growth of a regional economy. This is the conclusion of a report by the Science Shop of Economics and Business. The research was conducted by request of the Fryske Nasjonale Partij (Frisian National Party). The student researchers found that autonomous regions grow faster than other regions in Europe.

Econometrics students Pieter Crucq and Hendrik Jan Hemminga calculated that the economy of regions in federal states like Germany and Belgium grow significantly faster than the economy of regions in centralized stated like The Netherlands and France. Moreover, the average growth per capita of the autonomous regions (after correction for other growth determinating factors) is a half percent higher than the growth of other EU regions. Since the average growth in the other regions measures 1.7 %, this figure is considerably different (though not statistically significant).

A possible explanation is that an autonomous regional administration is more efficient and renders more accountability to the local population.

192 regions, 25 years

A data research on such a large scale and long period of time on the effect of autonomy and decentralization on regional economies has never before been conducted in Europe. Crucq and Hemminga evaluated the growth data of 192 regions in Belgium, Denmark, Germany, Finland, France, Greece, Ireland, Italy, The Netherlands, Austria, Portugal, Spain, the UK and Sweden over a period of 25 years (1978–2002).

Downsides

There are also downsides to more autonomy or decentralization of the national authority. For example, less advantage can be taken of large scale benefits in the supply of public goods and in collecting taxes. Moreover, Dutch provinces are so small that the profits mostly exceed this administration level, while the local politicians don't take this into consideration.

These downsides account for the conclusion that decentralization does not always have a positive effect on the economic growth. To minimize these effects, the researchers formulated guidelines for efficient decentralization.

Report:

Pieter Crucq and Hendrik-Jan Hemminga, Decentralization and Economic Growth per capita in Europe: University of Groningen, Science Shop of Economics and Business, EC 178, ISBN 978-90-5803-072-6