This study examines the spatial dependence, direct and
indirect effects of fiscal decentralisation on the provincial economic
growth of Pakistan. Due to spatial dependence, spatial econometric
technique is applied on the augmented growth of Mankiw, et al. (1992) by
incorporating the fiscal decentralisation variable in the theoretical
framework. The empirical analysis is based on the spatial panel data
set, which is used from 1990 to 2011 of provinces. Model is selected on
basis of specific to general and general to specific approach, and
decided two-way fixed effects Spatial Durbin model (SDM) is appropriate
for our data. We have estimated the SDM by maximum likelihood (bias
corrected and random effect) estimation technique, otherwise, if we
applied OLS and ignore the spillover effect which makes our estimated
parameters biased and inconsistent. Results show that revenue
decentralisation has positive, while expenditure decentralisation has
negative effect to provincial economic growth. Spillover effects are
found to be significant in case of revenue decentralisation and
insignificant in case of expenditure. Negative and insignificant
spillover effect of expenditure decentralisation is due to weak
institutions, lack of intra governmental competition, and absence of
political vision which may increase the level of corruption and less
accountability. On the basis of econometric analysis, it may be
suggested that federal government should transfer the resources to
provinces as determined in the 18th amendment, and it is the
responsibility of provincial government to train their officials in the
area of professional ethics, technical and administrative skills by
different programmes. JEL Classification: C31, C33, H3, H50 Keywords:
Fiscal Decentralisation, Spatial Econometrics, Revenue,
Expenditure
A Framework for Spatiotemporal Analysis of Regional Economic Agglomeration Patterns