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Interest Group Politics in a Federation

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Author Info
Guriev, Sergei
Yakovlev, Evgeny
Zhuravskaya, Ekaterina

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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 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 neighbouring 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6671.

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Date of creation: Feb 2008
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Handle: RePEc:cpr:ceprdp:6671

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Related research
Keywords: Federalism; Inter-jurisdictional externalities; Inter-state trade barriers; Interest groups; Multinational firms;

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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