OECD Regional Development Papers

Papers from the Centre for Entrepreneurship, SMEs, Regions and Cities of the OECD cover a full range of topics including regional statistics and analysis, urban governance and economics, rural governance and economics, and multi-level governance. Depending on the programme of work, the papers can cover specific topics such as regional innovation and networks, sustainable development, the determinants of regional growth or fiscal consolidation at the subnational level.


A comprehensive approach to understanding urban productivity effects of local governments

Local autonomy, government quality and fragmentation

This paper advances our understanding of the spatial dimension of productivity by investigating the link between subnational governance arrangements and urban labour productivity. It presents a detailed study of the direct and indirect effects of decentralisation (local autonomy), government quality and fragmentation and empirically demonstrates the need for a comprehensive approach when considering the effects of governance-related characteristics on regional economic outcomes. Multi-level analysis of data for Functional Urban Areas (FUAs) in Europe during 2003-2014 suggests that labour productivity tends to be higher in regions with higher quality of government. Productivity, on average, is lower in more decentralised countries. However, under “the right” conditions (high quality of government and low fragmentation), decentralisation is positively linked to productivity. Overall, cities with high levels of government quality and local autonomy but low horizontal fragmentation tend to be the most productive.


Keywords: fragmentation, local autonomy, quality of government, functional urban areas, Labour productivity
JEL: R50: Urban, Rural, Regional, Real Estate, and Transportation Economics / Regional Government Analysis / Regional Government Analysis: General; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government; H70: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government; Intergovernmental Relations: General
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