Electoral rules are found to induce different incentives to politicians and have various effects on the economic performance of countries. The literature is however silent on whether this effect is homogeneous across industries within a country. This paper argues with an analytical model that an incumbent government under majoritarian rules tends to favour larger industries so as to secure votes from the employees and relatives of those industries. By constructing and exploiting an original dataset that covers disaggregated data on output growth of 61 industries in 55 countries, we find that larger industries in terms of employment size grow slower than smaller ones under non-majoritarian electoral rules, but such a correlation is absent under majoritarian rule. This result is robust across different regression models and could well be explained by favouritism of governments towards larger industries.
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See Taagepera and Qvortrup (2012) for a review of the research on political and economic effects of electoral institutions.
An illustrative case in point for this mechanism is provided in McGillivray (2018) on the different political opportunities for the same industry (the cutlery industry) under alternative electoral rules, such as the UK and the US with majoritarian rules systems, and Germany, with a more proportional system.
As explained by Rodrik (2012), the UNIDO industrial statistics database is derived largely from industrial surveys, and therefore informal firms are often excluded from such surveys.
In a sense, our conjecture is reminiscent of previous works on special interest politics (Grossman and Helpman 2001), collective action literature (Esteban and Ray 2001) and ethnic group size (Dimico 2017). One might consider that large industries gain stronger strength to bargain and lobby by gathering a large number of employees or providing monetary campaign contribution. However, the absence of data on lobbying for our highly disaggregated approach constraints our ability to further test a potential lobbying-based explanation.
A regime is deemed democratic when the following conditions hold simultaneously: (i) the chief of the executive is elected, (ii) the legislature is elected, (iii) there is more than one party running the elections and iv) an alternation under the identical electoral rule has taken place.
We do not find PR and mixed systems present significant differences in the following estimations. We follow reference literature and group together PR and mixed systems (Knutsen 2011).
Note that our dependent variable is the 1-year lead industrial growth rate.
We have conducted models including alternative measures of democracy. Drawing on Knutsen (2011), we have considered the Polity2 index of the Polity IV Project, which brings similar results as those displayed in the paper.
Fixed effects by definition are time-invariant and thus the second stage is done on the one-country-industry one-observation basis.
It was done with Stata mixed command that relies on maximum likelihood estimation.
As the World Bank sector definition is rather fine-grained, the average employment size is 0.1% of population. But it is intuitive to assume that those “small” industries could be combined at a higher level and constitute a substantial group and be targeted by the government.
Results still hold with the non-trimmed sample and are not shown in the text, as we stress that a non-trimmed sample produces biased result in a cross-sectional setting.
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We would like to thank the reviewers, the editor, the audiences of the 2016 Annual Meeting of the European Public Choice Society in Freiburg (Germany), the 20th Annual Conference of the Society for Institutional & Organizational Economics in Paris (France) and the 1st Doctoral Conference of the University of the Basque Country in Bilbao (Spain). Izaskun Zuazu is specially grateful to Joan María Esteban for suggestions on a previous version of the paper, to Shanker Satyanath for discussions on the research and to her Ph.D. advisors Josu Arteche and Annick Laruelle. She acknowledges financial support from the COST Action IC1205 on Computational Social Choice for a short scientific mission at the Toulouse School of Economics (October 2015). This paper has also received financial support from the Spanish Ministry of Science and Innovation and ERDF Grant ECO2016-76884-P. Timothy Yu-Cheong Yeung would like to thank Philippe De Donder for his comments and encouragement. We share all remaining errors as we contributed equally to this work.
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Yeung, T.Y., Zuazu, I. The impact of electoral rules on manufacturing industries: evidence of disaggregated data of 61 industries of 55 countries. Const Polit Econ (2020). https://doi.org/10.1007/s10602-020-09310-w
- Electoral rules
- Manufacturing industry growth
- Industry size
- Special interest groups