The determinants of central vs. local government investment: democracy and development in Bolivia

This article defines decentralization as the devolution by central (i.e. national) government of specific functions, with all of the administrative, political and economic attributes that these entail, to democratic local (i.e. municipal) governments which are independent of the center within a legally delimited geographic and functional domain. Over the past few decades decentralization has become one of the most debated policy issues throughout both developing and developed countries. Bolivia is a particularly interesting case for study because reform there consisted of a large change in policy at a discrete point of time. The data available are of surprising scope and quality for its socio-economic characteristics, and include information on the political, social and civic, economic, institutional and administrative characteristics of all of Bolivia’s municipalities. It reviews the country’s decentralization program, focusing on the changes in national resource flows and discusses about the central and local government investment policies separately. The article empahsizes on the power of political and institutional variables, as well as indicators of training and capacity-building, to explain investment behavior under each regime.