Friday, December 18, 2015

The quality of politicians and economic growth

The quality of growth depends on the quality of politicians you elect! 

That’s the main point of a working paper by Prakash, Rockmore and Uppal, who summarized their findings in a VoxEU column. Apparently, the findings are based on their working papers, but a link to it is not provided yet in the column. Anyway, intuitively the results do not seem surprising if you look at the developing countries that have weak institutions and the same politicians or their associates being elected repeatedly.

Excerpts from the article:

Despite a history of widely contested and transparent elections, and the presence of a vibrant and open media, India is electing an increasing number of politicians facing criminal charges. This share has risen from 24% of members of the Indian Parliament in 2004 to 34% in 2014 (New York Times 2014). While the election of criminally accused candidates to public office is concerning in any context, it is especially so for India. Large quantities of funds are distributed by the government through a wide variety of interventions and programmes, which have been plagued by costly scandals with losses in the hundreds of billions of dollars (Sukhtankar and Vaishnav 2015). A severely understaffed judiciary and police force, resulting in an extremely slow judicial system, exacerbate this problem. Taken together, these realities create a context in which an influx of criminally accused politicians could be especially costly for an economy.
Using information on the charges filed against candidates, we estimate the causal effect of electing criminally accused politicians to the State Assembly on the subsequent economic activity in their constituency. In particular, we focus on elections in 20 Indian states during the 2004 to 2008 period. Since economic data are not systematically available for constituencies, we rely on satellite data on the intensity of night-lights. These data have been increasingly used to proxy for economic growth, as studies find a strong relationship between GDP and night-light intensity at the sub-national level (Bleakley and Lin 2012, Henderson et al. 2012, Hodler and Rashky 2014, Storeygard 2014). 
[…]We find that the election of an accused politician leads, on average, to roughly a 22 percentage point lower yearly growth in the intensity of night lights. Based on conversions between GDP and night lights, this is roughly 5.61% to 5.86% GDP growth per year (as compared to the 6% otherwise). Overall, these results highlight the high aggregate economic costs of electing lower quality politicians (i.e. criminally accused) and point to likely significant individual costs in foregone access to public services.
[…]We find a strong negative effect of electing politicians accused of financial or serious charges. In contrast, politicians who are only accused of either non-financial or non-serious charges do not have a negative impact on economic outcomes. We also find that the size of the negative effect increases with the number of underlying accusations. These results show that the specific accusations and charges matter, and the costs increase with the severity of the accusation.
[…]When we examine the accumulation of these costs, we find that the effects only appear in the later years of the politician’s term. There is no apparent effect in the initial years. We believe that this is explained by the need for politicians to collaborate with local bureaucrats to engage in corrupt activity (Iyer and Mani 2012). After elections, bureaucrats frequently change positions so it takes a certain amount of time for corruption politicians and bureaucrats to identify each other. Additionally, the effects of neglected public infrastructure, such as roads, may take some time to slow down economic activity.
[…]we find that the number of incomplete road projects increases in constituencies represented by criminally accused candidates. Once again, the negative impact is driven by candidates who are accused of serious and financial charges throughout India.
[…]we convert our estimates into rough measures of GDP costs and find estimates ranging from 2.3 to 6.5 percentage point lower GDP growth per year for our main result. 
[…]instead of focusing on the overall outcomes (such as the delivery of public goods), voters focus on whether politicians can deliver targeted transfers to their specific group or caste. Not only are voters perhaps more likely to overlook accusations, but these accusations might serve as a signal of the politician's willingness to use the office to reward fellow group members (Chauchard 2014, Wade 1985).