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The Philippines may be implementing some form of federalism.

Are there economic benefits to federalism? I ask because I observe that both Malaysia and the United States have some kind of federalism, and they are relatively wealthy.

One explanation could be that people can "vote with their feet" in these kinds of federalist countries. Each territory can have different policies on some subjects and people can move to areas that match their preferences. For example, in the United States marijuana is legal in California. People who want to use marijuana can move there and spend their money on marijuana, something which they otherwise might not have done.

In Indonesia, we have a very controversial election. Basically half of the people of Jakarta wants Ahok as governor. The other half think that Ahok is against islam.

It seems that federalism is a good solution for those 2. Let each govern their province as they wish.

And I wonder if this sort of works out in other countries too.

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    Most of the wealthy countries of Europe are not Federal, or have a very strong central government.
    – James K
    Commented Mar 3, 2018 at 18:04
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    It may also be a backwards causation. A country that is poor is harder to be federated (richer areas would split off from poorer, ala Catalonia)
    – user4012
    Commented Mar 3, 2018 at 18:18
  • Also, Japan has a strong central government and is prosperous.
    – ohwilleke ♦
    Commented Mar 5, 2018 at 19:33
  • "Are there economic benefits to federalism?" Why not. If done right a more local representation could just be more effective. Just think about subsidiarity.
    – NoDataDumpNoContribution
    Commented Mar 7, 2018 at 11:18

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There is very little evidence of a correlation, less of a causative relationship.

Federal states include some very rich countries: USA, Germany. Some countries with middle levels of income: Argentina, Malaysia. And some extremely poor countries: Sudan, Ethiopia.

There are rich countries with a unitary government (France, Japan) and poor ones (Mali, Laos)

One can argue that there are confounding factors (such as war) that could be hiding an underlying trend

Taking countries within one region, one can compare Chile and Argentina. Chile is a Unitary, Argentina is Federal. These are two neighbouring countries, with related histories, culture and language and climate. One, Argentina, is Federal; the other, Chile, is Unitary. If federalism caused economic growth we would expect Argentina to be significantly richer than Chile. In fact, the GDP/capita of the two countries is similar, with Chile currently slightly wealthier than Argentina. This gives no evidence that a federal country makes greater economic growth.

Federal governments don't appear to be significantly different in income than Unitary governments. The ability to move to a state where the laws are different does not seem to greatly affect GDP.

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    Moreover a country doesn't actually need to be federal to have laws which vary within it (e.g. the UK).
    – origimbo
    Commented Mar 3, 2018 at 19:03
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    And "federal/not federal" is a matter of shades, not black and white. It is quite possible to argue that the UK is a federation of Scotland, England, NI and Wales. Most countries (eg Japan) have some form of local or regional government. It is a matter of degree
    – James K
    Commented Mar 3, 2018 at 19:39
  • There are definitely some rich countries without a federalist type of government and you've shown that. But are there any poor ones that do? There have to be negative examples in order to argue there is no correlation. The best you could say is that federalism might be a factor.
    – Wes Sayeed
    Commented Mar 4, 2018 at 4:00
  • @WesSayeed "Ethiopia", "Sudan" are among the poorest countries in the world.
    – James K
    Commented Mar 4, 2018 at 8:34
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I got interested into this question and did a very rough calculation of the correlation between the Regional Authority Index (http://garymarks.web.unc.edu/data/regional-authority/) and the GDP per Capita for a convenience sample of 69 countries.

It turned out that the Pearson correlation between Regional Authority (i.e., federalism) and GDP per capita is about 0.3. So federalist countries do fare better in terms of economy. Clearly, this is just a correlation and does not show that federalism is a cause for this difference. And it is just a quick and dirty calculation with many threats to validity.

You can find my used raw data at https://github.com/tobiasbaum/federalism/

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