Interest Group Politics in a Federation

Abstract : The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by the spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize inter-state externalities to a larger extent than the lobbyists with interests within a single state. We use variation in the geographic boundaries of politically-powerful industrial interests to estimate the effect of inter-state externalities on firm performance. Using firm-level panel data from a peripheralized federation, Russia in 1996-2003, we show that, controlling for firm fixed effects, the performance of firms substantially improves with an increase in the number of neighboring regions under influence of multi-regional business groups compared to the number influenced by local business groups. Our findings have implications for the literatures on federalism and on international trade as trade restrictions are a common source of inter-state externalities.
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Submitted on : Tuesday, November 20, 2012 - 9:39:00 AM
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Sergei Guriev, Evgeny Yakovlev, Ekaterina Zhuravskaya. Interest Group Politics in a Federation. Journal of Public Economics, Elsevier, 2010, 94 (9-10), pp.730-748. ⟨10.1016/j.jpubeco.2010.04.004⟩. ⟨halshs-00754421⟩

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