Fiscal and governance decentralization can impact local firm dynamics in various ways. This Report uses Spanish data to assess the probability that cities either diversify or specialize over time over the period 1995-2007.

The results suggest that there is a high probability that a city will diversify if it is the capital of a regional government or located in a relatively decentralized region, while the opposite is true for the probability that a city will specialize. This suggests that the link between decentralization and specialization patterns in the urban system deserves more attention in the literature on decentralization, economic growth, and regional disparities.

The full Technical Report can be found here.