Favoritism and Firms: Micro Evidence and Macro Implications

Zareh Asatryan, Thushyanthan Baskaran, Carlo Birkholz and David Gomtsyan

No 9797, CESifo Working Paper Series from CESifo

Abstract: We study the economic implications of regional favoritism, a form of distributive politics that redistributes resources geographically within countries. Using enterprise surveys from low- and middle-income countries, we document that firms located close to leaders’ birthplaces grow substantially in sales and employment after leaders assume office. Firms in favored areas also experience increases in sales per worker, wages, and measured total factor productivity. These effects are short-lived, and operate through rising (public) demand for the non-tradable sector. We calibrate a simple structural model of resource misallocation on our estimates. This exercise implies that favoritism reduces output by 0.5% annually.

Keywords: regional favoritism; firm performance; enterprise surveys; resource misallocation (search for similar items in EconPapers)
JEL-codes: D22 D72 O43 R11 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-bec and nep-geo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Favoritism and Firms: Micro Evidence and Macro Implications (2022)
Working Paper: Favoritism and firms: Micro evidence and macro implications (2021)
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