Academic journal article The European Journal of Comparative Economics

Determinants of the Size of the Nonprofit Sector

Academic journal article The European Journal of Comparative Economics

Determinants of the Size of the Nonprofit Sector

Article excerpt

Abstract

Using comparable cross-section data on expenditures and labor force in the nonprofit sector for a sample of 25 nations, I test a series of hypotheses about their determinants. A small number of variables, of which the level of economic development and the role of government, are the most important and can explain over half of the variance in the sample in most cases.

JEL Classification: L3, P5, Z1

Keywords: non-profit sector, government role

1. Introduction

What are nonprofit institutions (NPIs)? Salamon and Anheier (1999) define them according to the following characteristics: The NPIs have an institutional presence and structure; they are institutionally separate from the state; they do not distribute their profits to any person or organization; they are self-governing; their membership is voluntary; and their financing is non-compulsory and comes from grants, fees, and gifts. These institutions may render charitable benefits (either goods, services, or money) to others; or provide health, education, or other services for a fee; or act to benefit those financing the nonprofit as a group of individuals as does, for example, a cooperative seed agency, a trade association, or a sports club.

This short essay explores the major determinants of the size of the nonprofit sector in 25 nations. I measure the size of this sector both by the ratio of NPI expenditures to GDP and also the ratio of the volunteers to these organizations to the total labor force. Such an exercise raises a number of problems.

Up to recently, many nations only reported data in their national accounts on nonprofit institutions serving households (NPISH). Such institutions represent only a narrow range of NPIs and few nations have implemented the proposed auxiliary accounts that would provide a more complete survey. As a result, published official data on other types of NPIs vary greatly in quantity, quality, and definition and are, therefore, difficult to compare.1 Valuing volunteer services for the NPIs raises additional problems.

Classification of the NPIs is not standardized and they can be classified in a variety of ways, by their major sources of finance, such as fees, government, or philanthropy; by the beneficiaries of their activities, such as charities; advocacy and/or political organizations (such as the American Civil Liberties Union or environmental groups) and mutual benefit organizations (such as churches, labor unions, trade organizations, fraternal and membership organizations, or cooperatives). They can also be classified by the focus of their activities, such as social service, culture, education, religion, or international; or by the NPI's relationship to the government (adversarial, complementary, or supplementary) (Young, 2004); or whether these organizations are tax exempt of not.

In section 2 I explore some of the proposed determinants of the size of the nonprofit sector and in the following section I test them. Section 4 briefly explores the relationship between the non-profit sector and altruism by comparing my measures of the NPI with recent estimates of 'charitable giving' by the Charities Aid Foundation. A final section discusses some of the implications of the results.

2. Conjectures about the Determinants of the Size of the Nonprofit Sector

Numerous scholars have attempted to identify the determinants of the size of the nonprofit sector, for example, Weisbrod (1977, 1988); Salamon (1987), and various authors in Powell and Steinberg (2006). With the notable exception of Salamon and Anheimer (1987) and Ben-Nur and Van Hoomissen (1992)2, most authors have focused primarily on determinants at a micro level, and, unfortunately, without considerable modification few of these hypotheses proved suitable for the macro-level analysis carried out below. I will briefly summarizes the approaches that appear most promising to me for explaining on a macro-level the size of the nonprofit sector. …

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