Robots Don't Vote: Political Cycles in Financing Automation

Abstract

This study documents empirical evidence that, despite an expansion in aggregate credit prior to elections, bank lending to finance automation technologies significantly contracts during these periods. Analyzing over 0.2 million corporate loans, we find that the likelihood of a bank loan origination for automation technologies is 25.2 percent lower in election years in constituencies where the incumbent politician is seeking reelection and facing electoral competition. Conditional upon issuance, the interest rate of bank loans that finance automation technologies is, on average, 40.4 basis points higher in treated constituencies during election years. These findings suggest that politically motivated bank lending may distort technology adoption decisions, revealing a mechanism hitherto unexplored through which political business cycles hamper economic growth.

Keywords: Politics, Political economy, Political business cycles, Politically motivated lending, Economic growth, Economic development, Banks, Bank loan

JEL Classification: D72, D24, G21, O14