The effect of fiscal decentralization on urbanization: Evidence from Cameroon

Abstract

We examine the effect of fiscal decentralization on urbanization in 213 Cameroonian municipalities between 2010 and 2020. Since 1990, developing countries including Cameroon have turned to decentralization as it promotes economic development. Using the generalized least square method for estimation we find that; fiscal decentralization has a positive and significant effect on urbanization. Using the 2SLS and the Lewbel-2SLS to treat the endogeneity issue, the results provide further confirmation of earlier studies, suggesting that fiscal decentralization positively affects urbanization. The findings are consistent with additional variables. To our results, central governments should transfer powers to local authorities for the provision of social infrastructures and services as this will develop rural regions and hence, reduce inequalities among municipalities.