Does more spending at the local level result in better development outcomes?

In countries around the world, the local public sector delivers the public services that people rely on day-to-day: schools for their children, public health services, access to clean drinking water, roads for getting goods to market, extension services for small farmers, garbage collection, and so on. While there are clear indications that an effective local public sector is a critical ingredient in delivering effective public services across a wide array of important pro-poor public services, little is known about the exact role of the local public sector in achieving sustainable service delivery and inclusive development. The Urban Institute's Local Public Sector Initiative aims to fill this knowledge gap.

Analyzing the vertical allocation of public sector resources in ten developing countries

With support from the US Agency for International Development (USAID), The Urban Institute engaged in a detailed analysis of local public sector finances in ten developing countries, with the intent to better understand the size and scope of Local Public Sector finances in achieving a country's development objectives. In particular, the study analyzed the "vertical allocation" of resources within the public sector by considering the share of public financial resources that is spent "close to the people" within public sector at the local level. The results from this study were presented at a meeting of USAID's Economic Growth Sector Council on July 2, 2013.

For the purpose of this analysis, Local Public Sector Expenditure Profiles were prepared for ten countries: Bangladesh, Cambodia, Indonesia, Mozambique, Nepal, Nigeria, South Africa, Sierra Leone, Tanzania and Uganda. Click here (or on the graph above) for a more detailed discussion on the Local Public Sector Expenditure Profiles prepared for these countries.

The analysis of these profiles uncovered that there is considerable variation in the size and composition of local public sector expenditures between countries, from less than 20% to over 50% of total public sector spending. The analysis further suggests that in reality, countries do not rely exclusively on either devolved local governments or deconcentrated administrations to deliver public services: instead, countries typically pursue a multi-level approach to service delivery and development, by which front-line services are delivered and funded through multiple mechanisms at the same time.

Additional findings from the study include:

  • The organizational structure of the subnational public sector seems to have some impact on the size of the local public sector: predominantly devolved countries tend to have a somewhat larger public sector than predominantly non-devolved countries. However, there is substantial variation in the size of the local public sector among both devolved and non-devolved countries, and a country's organizational structure does not appear to be a dominant factor in determining the size of the local public sector.
  • For low-income countries (below GDP of $1000 per capita), there appears to be no relationship between per capita GDP and the size of the Local Public Sector.
  • Central political contestability seems to be an important factor in determining the size of the local public sector: countries where the center has a monopoly on power tend to spend less at the local level.
  • There is a positive correlation between the size of the local public sector and perceived government effectiveness and control of corruption. Although the direction of causality of this relationship is unclear, this provides initial evidence that more effective public sectors spend a greater share of their resources at the local level.

Follow the link to read or download the complete study report.