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Endogenous economic policy and the structure of production: theory and evidence

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  • K T Soo
Abstract
This paper develops and tests a model that predicts a positive relationship between absolute levels of capital stock and how favourable are policies toward capital. The theoretical model we use is a model of campaign contributions and electoral competition, extended to consider the implications for factor mobility and hence the structure of production. There are two main predictions. First, countries with more capital stock tend to implement more pro-capital policies. Second, in a two country model, the country that initially has more capital will be able to attract capital infows from the other country. Given additional assumptions on the production side, this yields the prediction that the more different are countries.policies, the more different will be the set of goods which they produce. These predictions of the model are confrmed using panel data on cross-state differences in policies and economic outcomes in India.

Suggested Citation

  • K T Soo, 2005. "Endogenous economic policy and the structure of production: theory and evidence," Working Papers 565968, Lancaster University Management School, Economics Department.
    • Handle: RePEc:lan:wpaper:565968
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    References listed on IDEAS

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    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2001. "Factor Price Equality and the Economies of the United States," NBER Working Papers 8068, National Bureau of Economic Research, Inc.
    3. Stephen Redding & Daniel M. Sturm, 2005. "Location, location, location," CentrePiece - The magazine for economic performance 185, Centre for Economic Performance, LSE.
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    Cited by:

    1. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.

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