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.
Asher, Sam, and Paul Novosad.
"Politics and Local Economic Growth: Evidence from India."
American Economic Journal: Applied Economics,
Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Economics of Regulation
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
Institutions and Growth
Regional Economic Activity: Growth, Development, Environmental Issues, and Changes