published as 'Spatial Decentralization and Programme Evaluation: Theory and an Example' in: Oxford Bulletin of Economics and Statistics, 2019, 81 (3), 511 - 539
This paper proposes a novel instrumental variable method for program evaluation that only requires a single cross-section of data on the spatial intensity of programs and outcomes. The instruments are derived from a simple theoretical model of government decision-making in which governments are responsive to the attributes of places and their populations, rather than to the attributes of individuals, in making allocation decisions across space, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process is multi-stage with respect to administrative districts and sub-districts. The spatial instrumental variables model is then estimated and tested by GMM with a single cross-section of Indonesian census data. The results offer support to the identification strategy proposed.
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