Monday, August 5, 2013

6 August 2013: Politics and Local Economic Growth: Evidence from India

Sam Asher and Paul Novosad
Harvard University

Does politics have an impact on local economic outcomes? Using a regression discontinuity design built around close elections in India from 1990-2005, we examine the local economic effects of one form of political favoritism: the benefit of having a local politician who is aligned with the party in control of the state government. We show that private sector employment in politically aligned constituencies grows by 1.7 percentage points more per year than in non-aligned constituencies. We find no effect on government employment or supply of public infrastructure. Stock prices show 12-15% positive cumulative abnormal returns when an aligned candidate wins the constituency where a firm is headquartered, suggesting that political alignment is a net benefit to both local labor and capital. Finally, we use international survey data to classify industries by their dependence on (i) government bureaucracy, (ii) direct transfers in the form of procurement, and (iii) external finance. We find the effect of political alignment is largest in industries that depend most on government officials, with no significant effect of dependence on credit or procurement. The results suggest that state politicians can control the enforcement of regulation, with important economic consequences.

Date: August 6, 2013
Time: 12:30 P.M.

Second Floor Conference Room
The World Bank,
70 Lodi Estate,
New Delhi-110003(INDIA)


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Please confirm your attendance by email to Aarti Nanda ( by Monday, August 5th.

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