2025/06/26 by Sebastian Jävervall, Roza Khoban · 1 voice
Business, Management and Accounting · Economics, Econometrics and Finance · Social Sciences · #Economics #Global trade and economics #International Development and Aid #International economics #International trade #Law #Political Influence and Corporate Strategies #Political science #Politics
paper · doi:10.1257/app.20230629
published in American Economic Journal Applied Economics 17(3), 1-41 (American Economic Association)
openalex publication_date 2025/06/26 · openalex created_date 2025/10/10 · openalex updated_date 2026/06/11
Political distortions are prevalent in many developing countries, implying substantial productivity losses. This paper investigates the impact of trade liberalization on political distortions in India. First, using variation in political turnover, we identify that politicians distort resources in favor of politically connected firms. Second, we show that reduced tariffs on input goods significantly decrease the distortionary effect of political connections, as trade reduces firms' dependence on politicians for sourcing inputs. The results suggest a new margin for gains from trade through reduced politically driven misallocation, implying that trade can address a widespread source of productivity losses. (JEL D22, D72, F13, F14, O14, O19, O24)