Speaker
Description
We study the economic implications of regional favoritism, a form of distributive politics that redistributes resources geographically within countries. Using enterprise surveys from low- and middle-income countries, we document that firms located close to leaders’ birthplaces grow substantially in sales and employment after leaders assume office.
Firms in favored areas also experience increases in sales per worker, wages, and measured total factor productivity. These effects are short-lived, and operate through rising government demand in the non-tradable sector. We calibrate a simple structural model of resource misallocation in a two-sector and two-region economy on our estimates. This exercise implies that, despite large firm-level effects, output losses caused by favoritism are small because leaders do not tend to redistribute funds towards less productive regions.
| Keyword | Political Economy |
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