Favoritism and Firms: Micro Evidence and Macro Implications

Arbeitspapier

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 (public) demand for the non-tradable sector. We calibrate a simple structural model of resource misallocation on our estimates. This exercise implies that favoritism reduces output by 0.5% annually.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9797

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Institutions and Growth ; Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
• Subject: regional favoritism ; firm performance ; enterprise surveys ; resource misallocation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Asatryan, Zareh ; Baskaran, Thushyanthan ; Birkholz, Carlo ; Gomtsyan, David
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/263727
• Last update: 10.03.2025, 11:45 AM CET