The Essays in Political Economy and Development

Makarin, Alexey

doi:https://doi.org/10.21985/n2-6tpy-h764

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The Essays in Political Economy and Development

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Economic and political processes are heavily intertwined. Political processes put constraints on economic activity while economic development influences the way the political system operates. This interconnection is especially tight in developing countries and transition economies with less secure property rights, less stable political institutions, and more rapid economic changes. In my dissertation, I explore the connection between economics and politics in three key ways. First, I analyze how international and civil conflict can disrupt economic exchange among traditionally friendly nations. Second, I study whether a breakdown of the political party system in a highly decentralized developing country can lead to adverse consequences for local governance. Finally, I explore whether and how technological innovations in mass communication, such as social media, influence political life in autocratic regimes. Chapter 1, co-authored with Vasily Korovkin, asks whether conflict can lead to lower inter-ethnic economic exchange due to the rise of nationalistic attitudes. Specifically, we examine the context of the ongoing Russian military intervention in Ukraine. In a difference-in-differences framework, we leverage a newly compiled firm-level panel with the universe of Ukrainian trade transactions from 2013 through 2016 and exploit substantial spatial variation in the ethnic composition of Ukrainian counties. The estimates suggest that Ukrainian firms from counties with fewer ethnic Russians experienced a deeper decline in trade with Russia. We argue that this result stems from a differential rise in negative attitudes and beliefs about Russia across ethnicities within Ukraine. Possible mechanisms include consumer boycotts of Russian products, reputational concerns of Ukrainian firms, and a breakdown of trust in contract enforcement. In contrast, we find no evidence for individual-level animosity between firms' key decision makers or discrimination at the border. We also rule out that the differential decline in trade arises only from economic spillovers, such as refugee flows and destruction of supply chains with conflict areas. Chapter 2, co-authored with Ricardo Piqu\'{e} and Fernando Arag\'{o}n, focuses on an ongoing phenomenon of denationalization of local politics across the globe, in which sub-national parties have emerged as dominant forces in local elections. This phenomenon has raised concerns about increasing regional populism, weaker accountability, and worsening political selection. In this project, we examine for the first time whether the geographic scope of a party (national, regional or local) affects policy outcomes, such as budget size and expenditure allocation. Using a regression discontinuity design and rich data from Peruvian municipalities, we find negligible differences in policy outcomes between national and sub-national parties. We also document a small impact on the mayor's education and future corruption charges. The lack of stronger effects appears to reflect policy convergence driven by political competition. Overall, our results challenge the view that sub-national parties are detrimental to local governance. Chapter 3, co-authored with Ruben Enikolopov and Maria Petrova, focuses on one of the most central political economy question of the past decade --- do new communication technologies, such as social media, reduce collective action problem? In this project, we provide evidence that penetration of VK, the dominant Russian online social network, affected protest activity during a wave of protests in Russia in 2011. As a source of exogenous variation in network penetration, we use the information on the city of origin of the students who studied together with the founder of VK, controlling for the city of origin of the students who studied at the same university several years earlier or later. We find that a 10\% increase in VK penetration increased the probability of a protest by 4.6\%, and the number of protesters by 19\%. At the same time, VK penetration increased pro-governmental support, with no evidence of increased polarization. Additional results suggest that social media has affected protest activity by reducing the costs of coordination, rather than by spreading information critical of the government. We find that cities with higher fractionalization of network users between VK and Facebook experienced fewer protests, and there is a critical mass of VK users necessary to jumpstart the protests. Finally, we provide suggestive evidence that municipalities with higher VK penetration received smaller transfers from the central government after the occurrence of protests.

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