Municipal amalgamations and scale economies: Evidence from South Africa’s structural reforms

Municipal amalgamations have been implemented for, among others, linguistic, cultural, geographic, service equity, social transformation or political reasons. However, the idea that larger municipalities are in a better position to reap the benefits of scale effects has been the main motivation for amalgamations in several industrialised countries and, in more recent years, South Africa. Existing literature suggests that financial performance has not improved after municipal amalgamations in South Africa. However, this literature has relied almost exclusively on evidence from descriptive studies and similar approaches. Using the difference-in-differences approach with municipal panel data, this study sought to determine the financial impacts of the 2016 South African amalgamations. The results suggest that the amalgamations did not give rise to scale effects as they had no significant impact on operating expenditure per capita. Suggestive evidence, based on descriptive analyses, is presented of some of the main factors that might militate against post-merger cost savings in a developing country setting – the transition grant, whose scope is very limited, the harmonisation of salaries and service levels in the post-merger municipality, and poor financial governance.

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Publication Details

Journal
Urban Studies
Published
2025-12-06
DOI
https://doi.org/10.1177/00420980251393801
Primary Topic
Public Policy and Administration Research
Type
article
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article

Municipal amalgamations and scale economies: Evidence from South Africa’s structural reforms

Godwin Dube
Urban Studies
Public Policy and Administration Research
article

Municipal amalgamations and scale economies: Evidence from South Africa’s structural reforms

Godwin Dube
article en

Abstract

Municipal amalgamations have been implemented for, among others, linguistic, cultural, geographic, service equity, social transformation or political reasons. However, the idea that larger municipalities are in a better position to reap the benefits of scale effects has been the main motivation for amalgamations in several industrialised countries and, in more recent years, South Africa. Existing literature suggests that financial performance has not improved after municipal amalgamations in South Africa. However, this literature has relied almost exclusively on evidence from descriptive studies and similar approaches. Using the difference-in-differences approach with municipal panel data, this study sought to determine the financial impacts of the 2016 South African amalgamations. The results suggest that the amalgamations did not give rise to scale effects as they had no significant impact on operating expenditure per capita. Suggestive evidence, based on descriptive analyses, is presented of some of the main factors that might militate against post-merger cost savings in a developing country setting – the transition grant, whose scope is very limited, the harmonisation of salaries and service levels in the post-merger municipality, and poor financial governance.

Urban Studies
Education Labour Relations Council (ZA)
Openalex Percentile: Top 53%
Public Policy and Administration Research
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Municipal amalgamations and scale economies: Evidence from South Africa’s structural reforms — Godwin Dube · Urban Studies (2025) | TGRS Research Map | TGRS