Pakistan has tried many remedies for its sluggish growth, from stabilization programs and tax drives to export packages. Nearly all of them rest on one assumption: that a decision taken in Islamabad will reach a district in Dera Ismail Khan or Kharan intact and on time. The experience of other countries suggests that this assumption is itself part of the problem. Economies tend to grow when the officials closest to firms and citizens have the authority, the resources and the incentive to act. Pakistan, with its very large provinces and thin district-level administration, has more to gain from administrative decentralization than most.
The most rigorous recent evidence comes from China. Gong, Liu and Wu, writing in Economic Modelling in 2020, studied the “counties power expansion” reform that began in 2002, under which provinces handed county governments powers they had previously held themselves, including the power to offer preferential tax policies to investors. Using data on 1,888 counties between 2000 and 2008, they compared reformed counties with the rest and found that decentralization raised per capita GDP by about 3.3 percent. The mechanism matters more than the headline number. The gain came mainly through investment, which rose by roughly 18.8 percent, and empowered counties drew in more private firms, including firms from abroad and from Hong Kong, Macau and Taiwan. Local governments competed for capital by cutting red tape and building relationships with investors, and the reform finally allowed them to do so.
The same study carries a warning that Pakistan should take seriously. In counties where financial supervision was weak, some officials diverted funds meant for local construction and public goods to illegal uses, which sharply reduced the growth benefit. The authors describe decentralization as a trade-off between motivating local officials and preventing the abuse of power. The lesson is not that devolution fails, but that it pays off only when authority and accountability arrive together.
China is not an isolated case. A 2013 OECD working paper on fiscal federalism examined the link between decentralization and long-term development across countries and found that decentralization, measured by revenue or spending shares, is positively associated with GDP per capita. The association was stronger for revenue decentralization than for spending decentralization, which suggests that local governments need their own resources and not merely delegated spending duties. The paper also found that decentralization is strongly associated with better educational outcomes, as measured by international PISA assessments, and that more decentralized countries devote a significantly larger share of public spending to physical and, especially, human capital. For a country like Pakistan, where weak learning outcomes and underinvestment in people are among the deepest brakes on growth, this finding may be the most relevant of all. These are associations and not proof of causation, but they point consistently in one direction.
Indonesia offers the closest developing-country comparison, and its story is more sobering. After its sweeping decentralization in 2001, responsibility for many public services moved to districts. The World Bank’s December 2017 Indonesia Economic Quarterly, titled “Decentralization that Delivers,” took stock of the first fifteen years and reached a mixed verdict. Access to services improved and regions converged, but the quality of services remained poor and regional disparities were widening. The Bank’s diagnosis was about incentives and not about decentralization itself. It called for better evaluation of local government performance, for intergovernmental fiscal transfers tied to results, and for transparency and comparative performance data that would let citizens hold their local leaders to account. Indonesia shows that handing over power is only the first step. The center must remain a performance-minded partner, and citizens must have the information to demand more.
Where does Pakistan stand against this evidence? It has already moved on one front. The 18th Amendment and the 7th NFC Award shifted significant powers and resources to the provinces. But devolution largely stopped at the provincial capital. Elected local governments have been irregular, poorly funded and often subordinate to provincial bureaucracies, and the provinces themselves are enormous. A single province can hold tens of millions of people, and the distance between the person making a decision and the district living with it can be vast. In such a structure, the informational advantage of local government, which is the central argument for decentralization in the first place, is largely lost.
The China, OECD and Indonesia findings suggest what a sensible Pakistani approach would look like. Smaller administrative units would need real authority over planning, local licensing, business facilitation and service delivery, and not merely the job of implementing provincial orders. They would need meaningful revenue of their own, together with predictable transfers, because a unit that depends on discretionary handouts has little reason to grow its own tax base. Oversight would have to be built in from the start, through strong audit institutions, public financial reporting and independent monitoring, so that the Chinese experience of power outrunning supervision is not repeated. And performance would need to be visible and consequential. Publishing district-level data on school outcomes, health access and investment facilitation would give citizens something concrete to demand and give provincial and federal governments something concrete to reward.
Honest critics raise two objections, and both deserve an answer. The first is cost, the fear that more units simply mean more bureaucracy. That risk is real, which is why any restructuring should be judged by whether it is lean and tied to better service delivery, not by the number of new offices it creates. The second is local capture, the fear that decentralization hands power to entrenched local elites. The Chinese evidence on weak supervision and the Indonesian evidence on widening disparities both lend weight to this concern. Yet neither is an argument against decentralization. Both are arguments for designing it carefully and for supporting weaker regions through fair and transparent transfers.
It is also worth being candid about the limits of the evidence. The OECD results are associations, the Chinese study reflects a specific institutional setting, and Indonesia’s record is mixed. Pakistan cannot copy any of these models directly. But the consistent message across all three sources is that outcomes depend on the quality of design far more than on the principle of decentralization itself, and that is an encouraging message, because design is something Pakistan can choose.
Pakistan’s growth problem is, in large part, a governance problem, because too many decisions are made too far from the people they affect. China’s county reform shows that real authority in local hands can raise investment and incomes. The OECD data shows that decentralized systems are associated with higher output and stronger investment in people. Indonesia shows that without incentives and transparency, access may improve while quality lags. Taken together, the evidence supports a clear conclusion: Pakistan should bring administration closer to its citizens, but with real powers, real revenue and real accountability. If it does, decentralization could prove to be one of the most effective economic reforms the country has attempted.
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