Quality Of Civil Administration And Economic Growth: A Threshold Analysis

The paper distinguishes between 'immediate measures of the quality of civil administration' (IM-QCA), such as corruption, and the 'final measure of the quality of civil administration' (FM-QCA), which is the growth performance of an economy. The paper argues that, instead of being monotonic and linear, the relationship between civil service compensation and economic growth is characterized by vicious and virtuous circles, which are indicative of multiple equilibria. The paper uses the threshold regression methodology to test the multiple equilibria hypothesis and finds support for it. This finding questions the appropriateness of across-the-board salary reduction of civil servants as part of budget balancing austerity measures. Instead, the results of the paper suggest that civil service compensation can be an important policy tool for promoting economic growth, provided the complex, non-linear nature of the compensation-performance relationship, as revealed in this paper, is properly understood and taken into account.