Does Decentralization Decrease State Fragility? Evidence from Developing Countries

This paper analyses whether and how decentralization decrease state fragility in developing countries. Fiscal autonomy index that reflects local’s autonomy decision-making is considered to measure decentralization. The empirical analysis uses the generalized method of moments (GMM) on a sample of 64 developing countries from 1995 to 2018. Our study finds that increased local government’ autonomy in decision-making positively affects the decreasing of state fragility in developing countries and substantially increase state legitimacy. The result is robust to a battery of robustness checks. Furthermore, the result of nonlinear analysis shows a U-inverted and U-shaped connection between decentralization and state fragility. The result also indicates that the fiscal “share-rule” system between central and local governments increases the likelihood of state fragility. From a policy implication, we suggest to give more political and financial autonomy to the local government in order to provide better quality of public goods and services to the citizens.