Quid Pro Quo: Builders, Politicians, and Election Finance in India

Dec. 29, 2011, 3:25 p.m.

Devesh Kapur and Milan Vaishnav published a working paper for the Center for Global Development exploring the use of illegal funding for elections in India. They argue that politicians frequently turn to the construction sector for kickbacks during their campaigns. Through econometric analysis, they find a clear drop in the consumption of cement at the time of scheduled and unscheduled elections. This indicates that the sector is devoting more resources to finance campaigns than for construction projects. The findings hold up against several robustness checks. The paper is available here.

Abstract In developing countries where elections are costly and accountability mechanisms weak, politicians often turn to illicit means of financing campaigns. This paper examines one such channel of illicit campaign finance: India’s real estate sector. Politicians and builders allegedly engage in a quid pro quo, whereby the former park their illicit assets with the latter, and the latter rely on the former for favorable dispensation. At election time, however, builders need to re-route funds to politicians as a form of indirect election finance. One observable implication is that the demand for cement, the indispensible raw material used in the sector, should contract during elections since builders need to inject funds into campaigns. Using a novel monthly-level data set, we demonstrate that cement consumption does exhibit a political business cycle consistent with our hypothesis. Additional tests provide confidence in the robustness and interpretation of our findings.

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