State Capture in a Federation

Evgeny Yakovlev and Ekaterina Zhuravskaya

No w0093, Working Papers from Center for Economic and Financial Research (CEFIR)

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.

JEL-codes: D71 D72 P26 P27 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-01
New Economics Papers: this item is included in nep-cdm, nep-cis and nep-pol
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: State Capture in a Federation (2006)
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