Rethinking public sector performance in developing economies: A Musgravian capability approach

Abstract

The multidimensional PPP index is introduced in public sector performance (PSP) through different dimensions of developing economies under one empirical model. The paper, drawing on Musgrave's functional theory of public finance and Sen's capability approach, not only considers the common indicators of government efficiency and corruption but also adds macroeconomic stabilization and social outcomes to them. Panel data for a 30-year span were obtained with the help of World Development Indicators (WDI), which the study heavily relied on for the primary sources. Besides getting through Principal Component Analysis (PCA) seven sub-dimensional indices (administration education health, infrastructure distribution stabilization, and economic performance), the authors also put these into two principal (Opportunity and Musgravian) and finally into a single overall performance index. In the quantitative analysis, these two major types of performances (macroeconomic development/transition and the provision of social opportunity) seem to be the two most different areas. The health and infrastructure dimensions turned out to be more powerful explanatory elements So showing that the health care outcomes and access to digital connectivity are playing a more pivotal role to public sector performance. In contrast, the macroeconomic dimensions exhibited relatively insignificant connections indicating potential differences in the structure of developing economies. With this research, the paper shows a practical example of how one might construct a multidimensional index using PCA, which minimizes discretion/subjectivity related to aggregation methods and at the same time produces statistically valid weights to the variables.