Politicians and Local Economic Growth: Evidence from India
74 Pages Posted: 21 Jul 2016
Date Written: February 1, 2016
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.
JEL Classification: O12, D16, P72
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