STEG Working Paper

Favoritism and Firms: Micro Evidence and Macro Implications

Zareh Asatryan, Thushyanthan Baskaran, Carlo Birkholz, and David Gomtsyan


We study the economic implications of regional favoritism, a form of distributive politics that redistributes resources geographically within countries. Using enterprise surveys from low- and middle-income countries, we document that firms located close to leaders' birthplaces grow substantially in sales and employment after leaders assume office. Firms in favored areas also experience increases in sales per worker, wages, and measured total factor productivity. These effects are short-lived, and operate through rising (public) demand for the non-tradable sector. We calibrate a simple structural model of resource misallocation on our estimates. This exercise implies that favoritism reduces output by 0.5% annually.

Related content

STEG Working Paper

Bureaucratic Nepotism

Juan Felipe Riaño • Research Theme 5: Political Economy and Public Investment
STEG Working Paper

Occupational Inheritance in Africa

Nicolas Syrichas • Research Theme 2: Labour, Home Production, and Structural Transformation at the Level of the Household