Interest Group Politics in a Federation

Sergei Guriev, Ekaterina Zhuravskaya and Evgeny Yakovlev

No 6671, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 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 neighbouring 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.

Keywords: Federalism; Inter-state trade barriers; Interest groups; Multinational firms; Inter-jurisdictional externalities (search for similar items in EconPapers)
JEL-codes: D78 F15 F23 H77 P26 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-int, nep-pbe, nep-pol and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Interest group politics in a federation (2010)
Working Paper: Interest Group Politics in a Federation (2010)
Working Paper: Interest Group Politics in a Federation (2010)
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