Corruption and Decentralization: Does Country Size Matter for Interjurisdictional Competition?

The empirical evidence on whether decentralization can reduce corruption in developing,countries is mixed. This paper proposes that the benefits of decentralization are conditional,on the number of jurisdictions competing to attract mobile firms. I use firm level data from,the World Bank Enterprise Surveys and instrumental variables to show that decentralization,in countries with a large number of regions reduces bribes paid to public officials. To examine,this issue, I build a model of horizontal competition for public goods and bring some,predictions of this model to the data. Finally, I calibrate the model to a case study of a very,large and centralized country: Nigeria. According to the calibrated model, decentralization,in Nigeria could reduce the bribes paid to public officials by 17% which could lead to a 4.7%,growth of the firms' production.