Is there a local knowledge advantage in federations? Evidence from a natural experiment
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In economics, the local knowledge advantage is arguably one of the key arguments in favor of decentralizing the public sector. However, empirical investigations of this particular effect have been scarce. This paper tests the existence of the local knowledge advantage in a real-world setting. Specifically, it looks at the variation in local knowledge across regions based on the origins and careers of regional politicians, assuming that politicians who have spent more time in a particular region possess more and better knowledge of that region than outsiders. To avoid the reverse causality problem, the paper investigates how local origins affected the performances of politicians in a ‘natural experimental’ environment, studying the responses of regional governors in Russia to disastrous forest fires in 2010. We confirm that local knowledge improves gubernatorial performance. In a highly centralized federation such as Russia, though, the effect is dependent on access to federal resources obtainable through close ties to the federal center. We also discuss alternative interpretations of the local origins of politicians and test whether the effects found are indeed more plausibly explained by local knowledge.
KeywordsDecentralization Local knowledge Federal connections Exogenous shocks Russian regions
JEL ClassificationD73 H77 P26
The authors are grateful to the Editor in Chief William F. Shughart II, Associate Editor Peter T. Leeson, two anonymous referees, Ruben Enikolopov, Eberhard Feess, Sergei Guriev, Henrik Jordahl, Philip Keefer, Antti Moisio, Alexander Muravyev, Boris Porfiriev, Gilberto Turati, Adalbert Winkler, Andrei Yakovlev and to the participants of the conferences of the European Economic Association, German Economic Association, International Society of New Institutional Economics, World Congress of the Public Choice Societies, International Institute of Public Finance, New Economic School and Higher School of Economics, as well as seminars of the Frankfurt School of Finance & Management and Moscow State University for their very valuable comments. This paper was supported by the research network ‘Institutions and Institutional Change in Post-Socialism’ (KomPost) funded by the German Federal Ministry of Education and Research and a travel grant of the Deutsche Bundesbank. All mistakes remain our own.
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