Very cool new paper in the AEJ Applied.
Here’s the abstract:
Political favoritism affects the allocation of government resources, but is it consequential for growth? Using a close election regression discontinuity design and data from India, we measure the local economic impact of being represented by a politician in the ruling party. Favoritism leads to higher private sector employment, higher share prices of firms, and increased output as measured by night lights; the three effects are similar and economically substantive. Finally, we present evidence that politicians influence firms primarily through control over the implementation of regulation.
I love these kind of quasi-experimental papers! I preach/teach this approach to all who will listen (or are forced to pretend to listen).
Here’s a link to a working paper version.
A few comments.
“Favoritism leads to” is a bit of false precision. “Just barely electing the ruling party candidate vs an opposition candidate” is probably more accurate.
What are we supposed to think here, that the ruling party does this for all districts? Or that, having won a district they didn’t think they would, they invest at the margin to try and make it more secure?
Is this happening because the ruling party is favoring the barely won constituency or because it is punishing the barely lost constituency (or a combo of both)?
Do these kind of effects depend on how competitive the overall elections are? If say Congress has 70% of the districts, would this be happening? In other words, how generalizable is the finding.
These comments probably seem critical, but I would have pushed the “accept” button if I’d refereed the piece.
And here’s the “money shot” from the piece:
Looks like they punish the closely lost districts, no? or low growth is serially correlated and low growers vote for the opposition?