Subnational territorial reforms and state capacity: evidence from the developing world

Governments often change their internal territorial divisions to pursue either political or governance goals. Over the recent decades, territorial reforms of splitting local government units, known as government fragmentation, have gained popularity in the developing world, and further stimulate the ongoing discussion about jurisdiction size and the quality of government. Building on this stream of literature, this paper seeks to empirically examine how the design of the primary administrative division affects the overall capacity of the state to implement its policies. Drawing on a country-year panel of 132 developing countries in the 1960-2012 period, the paper documents an inverse U-shaped relationship between the degree of government fragmentation and state capacity measured by different indicators, which suggests a tradeoff in designing administrative divisions. Furthermore, the curvilinear relationship is found more pronounced in countries under a unitary government system or with a high level of ethnic fractionalization.