Local Government Capacity and Education Policy Outcomes: Evidence from Decentralization Reforms in Latin American Countries

Abstract

This research investigates the critical role of local government administrative capacity in determining education policy outcomes within decentralized governance systems. The study examines how variations in municipal-level capabilities affect the implementation and effectiveness of education reforms across Latin America’s diverse institutional contexts. Utilizing a comprehensive panel dataset from 156 municipalities in Chile, Colombia, and Mexico spanning 2018-2023, the research analyzes three key outcome indicators: educational infrastructure development, teacher professional development participation rates, and standardized student achievement scores. The methodology combines fixed-effects regression analysis with instrumental variable approaches to address endogeneity concerns. Results demonstrate that municipalities scoring in the top quartile of administrative capacity indices achieve 28% superior policy outcomes compared to bottom-quartile municipalities. Financial management capabilities (β=0.38, p<0.01) and inter-agency coordination mechanisms (β=0.41, p<0.001) emerge as the most critical capacity dimensions, jointly explaining 44% of implementation variance. The study further identifies specific capacity-building interventions—including technical assistance programs, digital governance tools, and performance-based funding mechanisms—that significantly enhance policy effectiveness. Heterogeneity analysis reveals that capacity effects are particularly pronounced in rural municipalities and areas with higher indigenous populations. These findings contribute to decentralization theory by highlighting the prerequisites for successful education devolution and offer actionable insights for policymakers designing context-appropriate governance reforms in developing countries.