Institutions and Economic Growth-The Case of Professional Bureaucracy

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9415480 Rauch This research will develop a theoretical model of bureaucratic institutions. The project is based on the idea that the creation of salaried professional bureaucrats changes the way government functions, because it changes the incentive mechanisms facing bureaucrats. Governments which have this kind of bureauractic structure tend to take a longer view of the benefits from public expenditures decisions. This means that they will tend at the margin to allocate a greater proportion of government resources to infrastructure projects that have a more distant payoff. The theoretical model is developed in which city government is modelled in a principal-agent framework. The principal is the elected official and the agents are the civil servants. Then the model is extended to bureaucratic institutions in less developed countries, in which it can be shown that merit-based promotion policies tend to reduce corruption and enhance the efficiency of government. The models are tested using data for U.S. cities in the early part of this century that experienced a wave of muinicipal reform. Next the theory is put to a more direct test to ascertain whether less-developed countries with merit-based promotion systems will exhibit higher growth rates, all else equal, than those that do not. Data on growth rates of the less-developed countries are used. This project is of significant interest because it attempts to link bureauratic structure with efficiency in the provision of governmental goods and services. The results from the study promise to give us an understanding of the relationship between bureaucratic performance and economic growth.