Fleeing a Lame Duck: Policy Uncertainty and Manufacturing Investment in US States

Nathan Falk and Cameron A. Shelton

American Economic Journal: Economic Policy, 2018, vol. 10, issue 4, 135-52

Abstract: It is found that electorally-induced policy uncertainty decreases manufacturing investment in US states. In a state with average partisan polarization, the elasticity of election-year investment to a specific measure of policy uncertainty is -0.027. When the incumbent governor is term-limited, there is greater uncertainty over the outcome, providing an instrument to demonstrate this effect is causal, not simply coincidental. Moreover, manufacturing investment does not rebound following the election. Rather, own-state uncertainty is associated with a large and significant coincident rise in neighboring states' investment. These findings suggest that policy uncertainty at the sub-national level drives investment to alternate sites.

JEL-codes: D25 D72 E22 G31 L60 R11 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pol.20160365
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Citations: View citations in EconPapers (5)

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