Administrative scale economies in local government: An empirical analysis of Sabah municipalities, 2000 to 2009

Municipal corporate centres not only perform multiple administrative functions, including supervision, monitoring and budgeting of the overall operation of local government, but also absorb significant resources. From a public policy perspective, it is thus important to determine whether administrative scale economies exist. Adopting an econometric approach, this paper investigates administrative scale effects and the determinants of administrative intensity at the corporate level for 22 local authorities in the Malaysian state of Sabah from 2000 to 2009. Our results indicate that there is an inverted U-shaped scale effect for staff size on administrative intensity in the small urban sample, while own-source revenue is the most important factor in determining administrative intensity in all local authorities and big urban samples. Several policy recommendations are proposed.