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American Economic Journal: Applied Economics: Vol. 1 No. 1 (January 2009)

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Fixing Market Failures or Fixing Elections? Agricultural Credit in India

Article Citation

Cole, Shawn. 2009. "Fixing Market Failures or Fixing Elections? Agricultural Credit in India." American Economic Journal: Applied Economics, 1(1): 219-50.

DOI: 10.1257/app.1.1.219

Abstract

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. I show capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output. (JEL D72, O13, O17, Q14, Q18)

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Authors

Cole, Shawn (Harvard U)

JEL Classifications

D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
O13: Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Q14: Agricultural Finance
Q18: Agricultural Policy; Food Policy

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