Does Intergovernmental Competition Improve the Business Environment? presented by Teju Velayudhan, OSU Department of Economics

Nov 15, 2019, 10:30am - 12:00pm

Teju Velayudhan, post-doctoral researcher in the Department of Economics at The Ohio State University will present "Does Intergovernmental Competition Improve the Business Environment?" on Friday, November 15th from 10:30am-12:00pm in Room 250A of the Agricultural Adminstration Building (2120 Fyffe Road, Columbus, OH 43210). Light refreshments will be served prior to the seminar, beginning at 10:00am. The event is open to the public. RSVPs are not required but seating is limited.

Abstract: Corruption, red tape, and underprovision of public goods impose significant burdens on firms in developing countries. We examine whether intergovernmental competition improves the business environment in the context of a major period of decentralization in Indonesia that increased the number of local governments by 50 percent within a decade. District governments, which are responsible for the majority of local public expenditure and receive revenue from business licensing and fees, split into smaller districts, increasing the number of local governments within original district boundaries. We exploit idiosyncratic variation in the timing of splits generated by a national moratorium to estimate the causal effects of intergovernmental competition. We find no evidence that competition reduces business fees or bribes paid by manufacturing firms to local officials. However, competition does cause an increase in infrastructure expenditure, potentially benefiting firms. Districts target infrastructure improvements toward villages that become closer to competing districts as a result of the split.