Chapter 4 – Decentralization & Responsiveness Across Bolivia

Chapters 2 and 3 showed that local governments in Bolivia were capable of accountable, responsive and efficient government, and also of systematic corruption, unresponsiveness and ineptitude. Which response predominated? This chapter uses quantitative data on the universe of Bolivian municipalities over the period 1987-2007 to provide more rigorous econometric evidence confirming the shifts in investment patterns described in chapter 1. Decentralization changed investment significantly in education, water management, industry and tourism, health, and agriculture after the 1994 reform, and to a lesser degree in transport and water & sanitation. These shifts are strongly and positively related to real local needs. In education, water & sanitation, health, agriculture, and at least one kind of urban development, decentralized investments are higher where illiteracy rates are higher, sewerage connection rates lower, malnutrition a greater risk, and so on respectively. These relationships are robust and insensitive to specification. Decentralization thus led to higher investment in human capital and social services as poorer, more deprived regions of the country chose the investment projects they needed most.