Economies of Scale in Local Thai Government Administration

Abstract

ABSTRACT
Amalgamation reform is a policy adopted by many countries, especially developed. The basic reason for most reforms is to take advantage of the economies of scale in the local provision of public services. However, a review of relevant empirical literature, most of which is based on descriptive evidence, reveals that any benefits arising from amalgamation remain controversial.
Thailand is considered a country with many small local government organizations. In this context, the relationship between economic efficiency and the size of the local government organization is often discussed, and thus also the issue of economies of scale in delivering local public services. In this article, cost function regression is used to analyze the economies of scale in all small local government organizations in Thailand. The cost function is applied to determine whether local government organization costs have increased or decreased compared to changes in population size. The results indicate that many local government organizations operated under increasing returns to scale (more than 90 percent of small local government organizations), some others were found to be operating under decreasing returns to scale. This means that local government amalgamation is required to bring the economies of scale into practice. Based on the results, the authors also attempt to determine the optimal size for a local government organization. The findings suggest that amalgamating to achieve the optimal size will help local organizations to save costs in terms of the number of staff or personnel expenses.

Keywords: Economies of Scale, Local Government, Amalgamation