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Interest group politics in a federation

Author

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  • Guriev, Sergei
  • Yakovlev, Evgeny
  • Zhuravskaya, Ekaterina

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.

Suggested Citation

  • Guriev, Sergei & Yakovlev, Evgeny & Zhuravskaya, Ekaterina, 2010. "Interest group politics in a federation," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 730-748, October.
  • Handle: RePEc:eee:pubeco:v:94:y:2010:i:9-10:p:730-748
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    Cited by:

    1. Jussila Hammes , Johanna & Nilsson, Jan-Eric, 2015. "The allocation of transport infrastructure in Swedish municipalities: welfare maximization, political economy or both?," Working papers in Transport Economics 2015:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    2. Antràs, Pol & Padró i Miquel, Gerard, 2011. "Foreign influence and welfare," Journal of International Economics, Elsevier, pages 135-148.
    3. repec:kap:empiri:v:44:y:2017:i:3:d:10.1007_s10663-017-9377-3 is not listed on IDEAS
    4. Sokolov, Vladimir & Solanko, Laura, 2016. "Political influence, firm performance and survival," BOFIT Discussion Papers 20/2016, Bank of Finland, Institute for Economies in Transition.
    5. Markevich, Andrei & Zhuravskaya, Ekaterina, 2011. "M-form hierarchy with poorly-diversified divisions: A case of Khrushchev's reform in Soviet Russia," Journal of Public Economics, Elsevier, pages 1550-1560.
    6. Libman, Alexander, 2013. "Natural resources and sub-national economic performance: Does sub-national democracy matter?," Energy Economics, Elsevier, vol. 37(C), pages 82-99.
    7. William Pyle & Laura Solanko, 2013. "The composition and interests of Russia’s business lobbies: testing Olson’s hypothesis of the “encompassing organization”," Public Choice, Springer, vol. 155(1), pages 19-41, April.
    8. Irina N. Ilina & Carol S. Leonard & Evgenij E. Plisetskij, 2014. "Russian Regional Resilience: Finance, Cooperation And Resource Abundance (A Case Study Of Khanty-Mansiysk)," HSE Working papers WP BRP 15/PA/2014, National Research University Higher School of Economics.
    9. Pyle, William & Solanko, Laura, 2010. "The composition and interests of Russia's business lobbies : A test of Olson's "encompassing organization" hypothesis," BOFIT Discussion Papers 5/2010, Bank of Finland, Institute for Economies in Transition.
    10. Irina Ilina & Carol Scott Leonard & Evgenij Pliseckij, 2014. "Modern trends and risks in the development of resource regions of Russia," ERSA conference papers ersa14p1111, European Regional Science Association.
    11. Andrei Govorun & Israel Marques & William Pyle, 2013. "The political roots of intermediated lobbying: evidence from Russian firms and business associations," HSE Working papers WP BRP 46/EC/2013, National Research University Higher School of Economics.
    12. repec:bpj:buspol:v:18:y:2016:i:4:p:395-433:n:1 is not listed on IDEAS

    More about this item

    Keywords

    Federalism Interest groups Inter-jurisdictional externalities Inter-state trade barriers Multinational firms;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation 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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