IDEAS home Printed from https://ideas.repec.org/p/cfr/cefirw/w0093.html
   My bibliography  Save this paper

State Capture in a Federation

Author

Listed:
  • Evgeny Yakovlev
  • Ekaterina Zhuravskaya

    (CEFIR / New Economic School)

Abstract

The paper provides evidence that the welfare effect of decentralization in countries with weak democratic institutions depends on the multi-jurisdictional vs. single-jurisdictional span of interest group lobbies. Weak democracy leads to capture of local authorities. Captors who have multi-jurisdictional scope internalize inter-jurisdictional externalities of local policies to a larger extent than both the captors with interests in a single jurisdiction and not captured local politicians. Particularly, multi-jurisdictional captors lobby for lower inter-regional trade barriers than single-jurisdictional captors. Based on case study evidence and econometric analysis of a unique data set from Russia, we show that capture by multiregional interest groups leads to significantly better performance of firms with no political connections in the neighboring regions and worse performance of such firms in the captured region compared to capture by regional industrial interests with similar political power or situation of no capture. Our findings have implications for international trade as well: lobbying by multinationals leads to lower protectionism compared to lobbying by national corporations.

Suggested Citation

  • Evgeny Yakovlev & Ekaterina Zhuravskaya, 2006. "State Capture in a Federation," Working Papers w0093, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0093
    as

    Download full text from publisher

    File URL: http://www.cefir.ru/papers/WP93Capture_in_a_federation.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-1162, December.
    2. Sergei Guriev & Andrei Rachinsky, 2005. "The Role of Oligarchs in Russian Capitalism," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 131-150, Winter.
    3. Musgrave, Richard A, 1969. "Theories of Fiscal Federalism," Public Finance = Finances publiques, , vol. 24(4), pages 521-536.
    4. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
    5. Jaime De Melo & Arvind Panagariya & Dani Rodrik, 2015. "The New Regionalism: A Country Perspective," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 14, pages 323-357, World Scientific Publishing Co. Pte. Ltd..
    6. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
    7. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 33-60.
    8. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-8.
    9. Irina Slinko & Ekaterina Zhuravskaya & Evgeny Yakovlev, 2005. "Laws for Sale: Evidence from Russia," American Law and Economics Review, American Law and Economics Association, vol. 7(1), pages 284-318.
    10. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    11. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
    12. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
    13. Michela Redoano, 2010. "Does Centralization Affect the Number and Size of Lobbies?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 407-435, June.
    14. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
    15. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    16. Sandra Poncet, 2005. "A Fragmented China: Measure and Determinants of Chinese Domestic Market Disintegration," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 409-430, August.
    17. Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
    18. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
    19. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    20. Timothy Frye, 2002. "Capture or Exchange? Business Lobbying in Russia," Europe-Asia Studies, Taylor & Francis Journals, vol. 54(7), pages 1017-1036.
    21. Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
    22. Hellman, Joel S. & Jones, Geraint & Kaufmann, Daniel, 2003. "Seize the state, seize the day: state capture and influence in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 751-773, December.
    23. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
    24. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
    25. Pankaj Ghemawat & Tarun Khanna, 1998. "The Nature of Diversified Business Groups: A Research Design and Two Case Studies," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 35-61, March.
    26. repec:hal:spmain:info:hdl:2441/1cu21pio6c90g9i5oedr5hnaa3 is not listed on IDEAS
    27. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
    28. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    29. Massimo Bordignon & Luca Colombo & Umberto Galmarini, 2003. "Fiscal Federalism and Endogenous Lobbies' Formation," CESifo Working Paper Series 1017, CESifo.
    30. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1091-1135.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alice N. Sindzingre & Christian Milelli, 2010. "The Uncertain Relationship between Corruption and Growth in Developing Countries: Threshold Effects and State Effectiveness," EconomiX Working Papers 2010-10, University of Paris Nanterre, EconomiX.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sergei Guriev & Evgeny Yakovlev & Ekaterina Zhuravskaya, 2007. "Inter-Regional Trade and Lobbying," Working Papers w0100, New Economic School (NES).
    2. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
    3. 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.
    4. Irina Slinko & Ekaterina Zhuravskaya & Evgeny Yakovlev, 2005. "Laws for Sale: Evidence from Russia," American Law and Economics Review, American Law and Economics Association, vol. 7(1), pages 284-318.
    5. Pranab Bardhan & Dilip Mookherjee, 2005. "Decentralization, Corruption and Government Accountability: An Overview," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-152, Boston University - Department of Economics.
    6. Boggio, Margherita, 2011. "From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization," MPRA Paper 46232, University Library of Munich, Germany.
    7. Alexander Alekseev & Natalia Tourdyeva & Ksenia Yudaeva, 2003. "Estimation of the Russia’s trade policy options with the help of the Computable General Equilibrium Model," Working Papers w0042, New Economic School (NES).
    8. Lu Ming & Zhao Chen & Yongqin Wang & Yan Zhang & Yuan Zhang & Changyuan Luo, 2013. "China’s Economic Development," Books, Edward Elgar Publishing, number 14502.
    9. Evgeny Yakovlev & Ekaterina Zhuravskaya, 2004. "State Capture and Controlling Owners of Firms," Working Papers w0044, Center for Economic and Financial Research (CEFIR).
    10. Zhuravskaya, Ekaterina & Slinko, Irina & Yakovlev, Evgeny, 2003. "Institutional Subversion: Evidence from Russian Regions," CEPR Discussion Papers 4024, C.E.P.R. Discussion Papers.
    11. Ekaterina Zhuravskaya, 2007. "Whither Russia? A Review of Andrei Shleifer's A Normal Country," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 127-146, March.
    12. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    13. Andreas Kyriacou & Oriol Roca sagalés, 2009. "Fiscal descentralization and the quality of government: evidence from panel data," Hacienda Pública Española / Review of Public Economics, IEF, vol. 189(2), pages 131-155, June.
    14. Keith Blackburn & Gareth Downing, 2015. "Deconcentration, Corruption and Economic Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 209, Economics, The University of Manchester.
    15. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.
    16. Eberhardt, Markus & Wang, Zheng & Yu, Zhihong, 2016. "From one to many central plans: Drug advertising inspections and intra-national protectionism in China," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 608-622.
    17. Che, Jiahua & Chung, Kim-Sau & Lu, Yang K., 2017. "Decentralization and political career concerns," Journal of Public Economics, Elsevier, vol. 145(C), pages 201-210.
    18. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    19. Bo, Shiyu, 2020. "Centralization and regional development: Evidence from a political hierarchy reform to create cities in china," Journal of Urban Economics, Elsevier, vol. 115(C).
    20. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.

    More about this item

    JEL classification:

    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfr:cefirw:w0093. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Julia Babich (email available below). General contact details of provider: https://edirc.repec.org/data/cefirru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.