International Development ISSN 1470-2320 Prizewinning Dissertation 2018 No.18-KL Decentralisation: Road to Development or Bridge to Nowhere? Estimating the Effect of Devolution on Infrastructure Spending in Kenya Kurtis Lockhart Published: February 2019 Department of International Development London School of Economics and Political Science Houghton Street Tel: +44 (020) 7955 7425/6252 London Fax: +44 (020) 7955-6844 WC2A 2AE UK Email: [email protected] Website: http://www.lse.ac.uk/internationalDevelopment/home.aspx Candidate Number: 91345 MSc in Development Management 2018 Dissertation submitted in partial fulfilment of the requirements of the degree Decentralisation: Road to Development or Bridge to Nowhere? Estimating the Effect of Devolution on Infrastructure Spending in Kenya Word Count: 10,081 Abstract Does the decentralisation of state institutions result in a more equitable distribution of public goods in the African context? To answer this question this study examines a natural experiment in Kenya where the new 2010 Constitution devolved political and fiscal powers to 47 newly-established county governments. A difference-in-differences strategy is employed that exploits heterogeneity in the ethnic alignment of each county to the president. This effectively varies the intensity of the ‘treatment’ of devolution across counties. Using data on road expenditure across all 47 counties from 2010 to 2017, this study finds that the devolution of state structures in Kenya resulted in a significantly more equitable distribution of road spending. These results represent an important contrast to the prevailing view in the literature that asserts that decentralisation reforms in sub-Saharan Africa have largely failed to live up to expectations. Acronyms CoB Office of the Controller of the Budget GoK Government of Kenya KeNHA Kenya National Highways Authority KeRRA Kenya Rural Roads Authority KRB Kenya Roads Board KURA Kenya Urban Roads Authority LDC Late Developing Countries MTEF Medium Term Expenditure Framework PNU Party of National Unity SSA Sub-Saharan Africa TNA The National Alliance Table of Contents 1. Introduction ....................................................................................................................................... 1 2. Literature Review............................................................................................................................... 3 2.1 Decentralisation ........................................................................................................................... 3 2.2 Ethnic Politics in Kenya .............................................................................................................. 5 2.2.1 Colonial District Boundaries and the Formalisation of Ethnicity ........................................................... 5 2.2.2 Ethnic Politics in Kenya and the 2010 Constitution ........................................................................... 7 2.3 Roads and Development ............................................................................................................. 8 3. Methods and Data ............................................................................................................................. 9 3.1 Variables and Data ....................................................................................................................... 9 3.2 Empirical Strategy ..................................................................................................................... 11 3.3 Identification Assumption: Parallel Trends ............................................................................. 12 4. Results .............................................................................................................................................. 14 4.1 Regression Analysis ................................................................................................................... 14 4.2 Robustness Checks .................................................................................................................... 16 4.2.1 Placebo Test .............................................................................................................................. 16 4.2.2 The 2013 Election, the New National Government, and Cabinet Formation ........................................ 17 4.2.3 Other Robustness Checks ............................................................................................................ 20 5. Limitations and Avenues for Future Research .............................................................................. 20 6. Conclusion and Policy Implications .............................................................................................. 22 References ............................................................................................................................................ 25 Appendix 1: Data Sources and Description of Key Variables ........................................................... 30 Appendix 2: Other Robustness Checks ............................................................................................. 32 Appendix 3: County Ethnic Composition, 2009 ................................................................................ 32 Appendix 4: The Public Spending Priorities of Kenyan Citizens .................................................... 34 Appendix 5: List of Key Informant Interviews .................................................................................. 35 DV410 Page 1 of 35 91345 1. Introduction Does the decentralisation of political and fiscal institutions result in a more equitable distribution of public goods in the sub-Saharan African (SSA) context? Over the preceding few decades decentralisation reforms have increasingly been recommended by policy analysts and donor agencies and, in turn, adopted by policymakers in late developing countries (LDCs) as a way of ‘bringing government closer to the people’ (World Bank, 1999; Faguet, 2012). The theory underlying this trend asserts that more devolved political and fiscal power increases government accountability and responsiveness resulting in more effective public service delivery. Such enhanced levels of accountability and responsiveness in a decentralised system are posited to be brought about because subnational politicians have more accurate information about local needs and, relatedly, local citizens possess more intimate knowledge about the performance of subnational politicians (Oates, 2005; Ostrom et al., 1993; World Bank, 1994). In addition to improving public service delivery, decentralisation advocates also stress that devolved state structures can help reduce inter-group conflict in multi-ethnic societies (Roeder, 2010). This is because centralised states in LDCs are often dominated by the majority ethnic group who, in control of a powerful executive branch, systematically target state resources to their co- ethnics in exchange for electoral support, all but ignoring non-aligned, minority ethnic groups (Bates, 1989; Franck & Rainer, 2012; Hodler & Raschky, 2014). It follows that by extending subnational autonomy to these non-aligned groups – historically excluded by a strong, centralised state – proponents avow that decentralisation can augment the size of the national pie that such minorities receive and thereby decrease the potential for lingering ethnic cleavages to erupt into outright violence (World Bank, 2004; van de Walle, 2001). This claim is especially important in the African context due to the salience of ethnicity in politics throughout the sub-continent as well as the ubiquity of centralised states with ‘big man’ presidents in the post-independence era (Horowitz, 1985; Hassan, forthcoming). The study of decentralisation is motivated by overriding concerns of democratic accountability, political responsiveness, and equity in the distribution of public goods. Moreover, a further motivation from an academic perspective is that, despite most LDCs (and almost every African country) embarking on some type of decentralisation reforms since the early 1990s (Brosio, 2000; Manor, 1999), the literature is still largely ambiguous as to its ultimate effects. In this study I examine the effect of devolution in Kenya on public goods provision. Specifically, in 2010 Kenya passed a new Constitution that decentralised broad fiscal and political DV410 Page 2 of 35 91345 functions to 47 newly created (and popularly elected) subnational county governments at a discrete period in time (March, 2013). These constitutional changes to Kenya’s state structure create a natural experiment. I use a difference-in-differences method to estimate the effect of devolution on road spending. I exploit heterogeneity in the ethnic alignment of each county to the president that, in effect, varies the intensity of the ‘treatment’ of devolution. The panel data constructed for this study includes data on total road spending for every county for each fiscal year from 2010/11 to 2016/17 for a total of 287 observations. Reviews of decentralisation on the sub-continent broadly characterise decentralisation reforms in SSA as not having lived up to expectations (Hassan, forthcoming), with particular epithets being used to label the specific breed of African decentralisation: ‘reluctant decentralisation’ (Hassan, forthcoming), ‘centralised federalism’ (Dickovick, 2014), ‘fragile, unstable, or failed federalism’ (Erk, 2014), and ‘recentralisation’