Decentralisation and Local Economic Development in Albania Merita Toskaa, Anila Bejko (Gjika)B
Total Page：16
File Type：pdf, Size：1020Kb
Annual Review of Territorial Governance in the Western Balkans, I, 2019, 53-68 53 Journal of the Western Balkan Network on Territorial Governance Print ISSN 2706-6371 https://doi.org/10.32034/CP-TGWBAR-I01-05 Decentralisation and Local Economic Development in Albania Merita Toskaa, Anila Bejko (Gjika)b Summary Local governance in Albania has been the subject of several reforms over the last few years. The consolidation of local self-government units into 61 municipalities through the administrative and territorial reform was accompanied by the approval of a new law on local self-government, a new strategy for decentralization, and the devolution of some new functions to the local level. The completion of the legislative framework with a law dedicated to local finances was of particular importance for local governments. Nevertheless, while the available financial resources to the 61 municipalities are assessed to have followed an upward trend, their allocation seems to have had different effects on local economic development. Stronger decentralization and fiscal autonomy at the local level leads to better services for citizens, and theoretically translates into favourable conditions for promoting local economic development. This article assesses the relationship between the local government decentralization processes undertaken after 2010 in Albania and local economic development. The results, based on data for the period 2010-2018, are different for municipalities of different sizes, demonstrating the need to complement decentralization reforms with instruments that enhance local capacity and are tailored to local needs. Furthermore, it is concluded that these findings are introductory and not exhaustive, as long as a commonly agreed indicator approximating local economic development is not set. However, the assessment brings added value to the deepening of knowledge on the effects of decentralization policies on the local economy and can inform further steps towards fiscal decentralization. Keywords: Decentralization, Local Economic Development, Fiscal Autonomy, Asymmetric Decentralization, Disparities, Local Capacities, Albania Contact [email protected] (Corresponding author) [email protected] Co-PLAN, Institute for Habitat Development, Permanent Workshop on Territorial Governance POLIS University, Tiranë, Albania, www.co-plan.org; www.universitetipolis.edu.al Copyright @2019 Co-PLAN, Institute for Habitat Development and POLIS Press. All rights reserved. No part of this publication may be reproduced, stored, transmitted or disseminated, in any form, or by any means, without prior written permission from the Publishers, to whom all requests to reproduce copyright material should be directed, in writing. 54 Merita Toska, Anila Bejko (Gjika) Introduction advantages over central government, and consequently higher efficiency in public The decentralization process in Albania has service delivery (Musgrave, 1959; Oates progressed at a slow pace and in waves, 1972, 1993; Rodrígues-Pose & Krøijer, 2009). shifting over time in recent years in all The second is the hypothesis originally dimensions: fiscal, administrative, political, raised by Tiebout (1956) and further tested and economic (Ahmad, et al., 2010). This by Cantarero and Perez Gonzales (2009) process has materialized in the progressive and Yushkov (2015), according to which the and symmetrical transfer of administrative freedom of population displacement from and fiscal authority from central to local one territory to another, and competition government. This process is largely based among local governments will be a strong on the theory of economic benefits that impetus to find the best balance between can be obtained through a higher level consumer-voter preferences and local self- of vertical decentralization, reinforcing government. Based on these considerations, the potential role of local governments and according to Davoodi and Zou (1998), in economic development (Toska & Bejko policies aimed at delivering public services (Gjika), 2018; Co-PLAN, 2019) . The idea that that are sensitive to local specificities (such local and regional development policies as infrastructure, education, etc.) are more can be more effectively addressed at the successful in promoting growth when subnational level is now widely accepted defined locally, versus those determined in Albania. Local administrations, with the by the central level, which fail to capture level of autonomy they enjoy, are important or ignore local differences. Following this, actors in local economic development. a decentralized fiscal system where local However, the findings of this paper show governments play an important role in that decentralization reforms have been delivering local public services can indirectly accompanied with increased social and lead, among other things, to accelerated economic disparities at the municipal level economic growth (Oates, 1993; Thiessen, (Toska and Bejko (Gjika), 2018) and at the 2003; Bartlett et al., 2018). county and regional level (Boeckhout et Although this link is theoretically asserted, al., 2010; Shutina et al., 2015). Thus, while empirical findings suggest a range of the process of fiscal decentralization relationships (from positive to negative seems to have a positive effect on the to indeterminate or no effect) between country’s largest municipalities, with a high decentralization and economic growth. concentration of population and economic The quality of the data used and the activities, the same cannot be said for duration of the data series, the indicators smaller municipalities. The latter face major used to approximate the concept of challenges in providing better services to decentralization and economic growth, the citizens, especially given an absence of models used to assess this relationship, and human resources. All this, together with the the inability to isolate fiscal decentralization limited ability to orient investment policies (both administratively and politically) are towards local needs and potentials, seems to some of the technical aspects that are reduce the chances of these municipalities estimated to influence the determination to promote local economic development of the relationship between indicators. Also, (Dhrami & Bejko (Gjika), 2018; Imami et al., the relative success of decentralization is 2018). the result not only of the decentralization Theories advocating for vertical model designed and implemented, but decentralization are broadly based on two also of factors such as country-specific complementary hypotheses. The first is characteristics, the stage of development it is that local governments have information in, the level of democracy, and especially the Decentralisation and Local Economic Development in Albania 55 existence of effective and strong institutions statistical indicators have been used since at all levels of government (Dabla – Norris, the construction of econometric models is 2006). Consequently, the level and patterns impossible due to short and limited time of decentralization are very different from series . Initially, it is assessed the performance one country to another. For example, in the of some decentralization proxies making Organisation for Economic Co-operation use of national level data and is tested and Development (OECD) countries the local whether there is a relationship between government sector accounted for about them and the economic development proxy 16.2% of Gross Domestic Product (GDP), indicators. Further, the same is done with 40.4% of public spending, and about 56.9% indicators at the municipal level. In both of public investment in 2016. In South East cases, the Pearson correlation coefficient is European countries, local budgets made up used to assess the existence of a relationship only 5.9% of GDP on average and 16.9% of between decentralization indicators and public spending in 2017 (NALAS, 2018). local economic development ones . In Albania, decentralization reforms play At national level, the economic development an important part in the government’s indicator is proxied by the per capita income reform program, and the deepening of indicator, measured as the ratio of nominal decentralization continues to be widely GDP to average annual population , for the suggested by international organizations. period 2010-2018. In the literature, a number Meanwhile, empirical studies and findings of indicators have been used to measure and suggest that the effects of decentralization assess the level of decentralization. In this on local economies are far from what analysis two categories of Proxy indicators expected and to have deepened inequalities will be used to assess the decentralization at local level (Toska & Bejko (Gjika), 2018). In level: proxies on the revenues raising this context, the purpose of this policy paper responsibilities and proxies on expenditure is to empirically assess the existence (or not) assignment responsibilities’ over the period of a relationship between decentralization 2010-2018: reforms and the improvement of local economic development in Albania. Research Ratio of expenditures / revenues of on this relationship has not previously been municipalities (with own source, freely conducted for Albania. This paper carries the disposable and total revenues) to added value of informing policy-making on general government expenditures / further steps towards fiscal decentralization, revenues (appendix 1); improving local economic development,