Economic Influence Activities and the Strategic Location of Investment
42 Pages Posted: 20 Jun 2022
Date Written: June 6, 2022
This paper examines the economic influence activities (EIAs) of firms. We argue that firms invest in jobs and establishments in districts of congressional committee members that have oversight over their businesses and industries. This investment increases as legislators’ power rises in Congress. Our theory makes three predictions. First, EIAs by firms will be higher in congressional districts where the legislators have substantial political influence over the firm, relative to districts where legislators have little influence over the firm. Second, EIAs will increase with the legislators’ power on the focal committee. Third, when a legislator exits the committee, EIAs will diminish, but previous investments in the district will remain. We test these predictions by analyzing the Trinet census of establishments, mapped into the committee structure of the U.S. Congress, by tracking the investment and employment of firms in each industry in each congressional district over time. Using fixed effects models, we show the predictions of the theory find substantial support in the U.S. Senate but not the House. We explore causality by using exogenous exits of politicians by death and scandals to further complement our analysis, and discuss why EIAs may be less likely to occur and detect in the House.
Keywords: economic influence activities, firm political influence, economic geography, firm investment, nonmarket strategy
JEL Classification: D72, L5, K2
Suggested Citation: Suggested Citation