An independent study commissioned by AER proves what regions have always known, that subsidiarity is a key to economic success

Brussels, 18 May 2009

An independent study establishing the first “Decentralisation Index” has found that the economies of decentralised countries are performing significantly better across Europe than those of highly centralised states.

“These findings are set to open a crucial debate, particularly among policy-makers in highly centralised countries, as Europe struggles to reverse the effects of the global economic downturn,” said Michèle Sabban, president of the Assembly of European Regions (AER), the organisation that commissioned the study and the largest independent network of regional authorities in Europe.

Launched today in Brussels, “From Subsidiarity to Success: The impact of decentralisation on economic growth” is the timely result of two years of research and analysis by BAK Basel Economics, an independent economic research institute based in Switzerland.

“We need long-term solutions to the economic crisis. And that is why national and regional governments must agree on an optimal balance in their distribution of powers, one that maximises their territories’ economic growth potential. This study enables them to do that with the aid of extensive data and empirical analysis,” Ms Sabban said.

The study found that the application of the subsidiarity principle in the distribution of powers is a key to economic success, and that a country’s economic performance can be improved with more influence of the regions at the national level, more independence of the regions from the national level, financial competences and resources for the regions, as well as more competences in recreation and culture, infrastructure, education and research, and health care.

“These results prove definitively what AER has known anecdotally for a long time: that the economies of regions with greater competences are performing better as a result than those within more centralised countries,” Ms Sabban said.

The only exceptions to this trend, the study found, are the highly centralised transition countries that have experienced rapid economic growth over recent years. The findings also suggest, however, that those countries’ economies could have performed even better with a more decentralised distribution of powers.

The two-part study

Part one of the study, “Creating a Decentralisation Index”, marks the first combined qualitative and quantitative analysis of decentralisation indicators ever conducted. The study brought together quantitative data gathered from existing sources – such as the OECD, IMF and Eurostat – with qualitative data based on the results of 88 questionnaires completed by regions from 26 European countries, along with a number of countries outside Europe. Based on five sub-indices (Administrative, Functional, Political, Vertical and Financial decentralisation), a “Decentralisation Index” was then created to mark the degree of decentralisation of a country/region on a scale from 0 to 100. Switzerland was found to be the most decentralised European country with an index value of 70, while Bulgaria is the most centralised with a value of 25.

Part two of the study, “Decentralisation and Economic Performance”, investigated via regression analysis the impact that decentralisation has upon economic variables, according to indicators such as performance data (GDP per capita and GDP growth) and innovation output (universities, academic research and patents). The study found that decentralisation clearly does have a positive impact on the economic performance of regions, although some fields – most notably academic research – enjoy a greater benefit from the “concentration effect” of a more centralised distribution of powers. The question of whether there is an optimal degree of decentralisation conducive to economic growth was also examined, although the results found that such a formula could only be devised pending further research on a country-by-country basis.

A third publication, the study’s “Summary and Conclusions”, brings together the key findings and explores a number of policy implications for decision-makers.

For more information: [email protected]