Is there a local knowledge advantage in federations? Evidence from a natural experiment

In economics, the local knowledge advantage is arguably one of the key arguments in favor of decentralizing the public sector. However, empirical investigations of this particular effect have been scarce. This paper tests the existence of the local knowledge advantage in a real-world setting. Specifically, it looks at the variation in local knowledge across regions based on the origins and careers of regional politicians, assuming that politicians who have spent more time in a particular region possess more and better knowledge of that region than outsiders. To avoid the reverse causality problem, the paper investigates how local origins affected the performances of politicians in a ‘natural experimental’ environment, studying the responses of regional governors in Russia to disastrous forest fires in 2010. We confirm that local knowledge improves gubernatorial performance. In a highly centralized federation such as Russia, though, the effect is dependent on access to federal resources obtainable through close ties to the federal center. We also discuss alternative interpretations of the local origins of politicians and test whether the effects found are indeed more plausibly explained by local knowledge. Copyright Springer Science+Business Media New York 2015