Interest Group Politics in a Federation

41 Pages Posted: 9 Jun 2008

See all articles by Sergei Guriev

Sergei Guriev

Sciences Po; Centre for Economic Policy Research (CEPR)

Evgeny Yakovlev

New Economic School

Ekaterina Zhuravskaya

Paris School of Economics (PSE)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize inter-state externalities to a larger extent than the lobbyists with interests within a single state. We use variation in the geographic boundaries of politically-powerful industrial interests to estimate the effect of inter-state externalities on firm performance. Using firm-level panel data from a peripheralized federation, Russia in 1996-2003, we show that, controlling for firm fixed effects, the performance of firms substantially improves with an increase in the number of neighbouring regions under influence of multi-regional business groups compared to the number influenced by local business groups. Our findings have implications for the literatures on federalism and on international trade as trade restrictions are a common source of inter-state externalities.

Keywords: Federalism, Inter-jurisdictional externalities, Inter-state trade barriers, Interest groups, Multinational firms

JEL Classification: D78, F15, F23, H77, P26

Suggested Citation

Guriev, Sergei and Yakovlev, Evgeny and Zhuravskaya, Ekaterina, Interest Group Politics in a Federation (February 2008). CEPR Discussion Paper No. DP6671. Available at SSRN: https://ssrn.com/abstract=1140953

Sergei Guriev (Contact Author)

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Evgeny Yakovlev

New Economic School ( email )

Skolkovskoe shosse 45
Moscow, 121343
Russia

Ekaterina Zhuravskaya

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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