Political Power-Sharing, Firm Entry, and Economic Growth: Evidence from Multiple Elected Representatives

Abstract

We examine the effect of political power-sharing on local economic activity by exploiting quasi-random variation in the number of politicians governing adjacent regions. We utilize haphazard overlap of electoral and administrative boundaries in India. This allows us to exploit geographic discontinuity across boundaries separating single and multiple-politician-governed regions and within-region variation in the number of politicians. We find increasing the number of politicians governing an area leads to new firm creation, lower unemployment, and greater real economic activity. The effect is driven by greater state efficiency, lower regulatory bottlenecks, and reduced cronyism following increased checks and balances among non-aligned politicians.

Keywords: power-sharing, checks and balances, multiple politicians, firm entry, regulatory cost, cronyism, state efficiency

JEL Classification: O43, P16, D73, M13