Interest Group Politics in a Federation
Journal article: 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.
Author(s)
Sergei Guriev, Evgeny Yakovlev, Ekaterina Zhuravskaya
Journal
- Journal of Public Economics
Date of publication
- 2010
Keywords JEL
Keywords
- Federalism
- Interest groups
- Inter-jurisdictional externalities
- Inter-state trade barriers
- Multinational firms
Pages
- 730-748
URL of the HAL notice
Version
- 1
Volume
- 94