Publications
- Fixing Market Failures or Fixing Elections? Agricultural Credit in India
- Download: PDF 241.89 KB
- by Cole, Shawn
- How vulnerable are economic interventions to political capture, how are captured resources
used, and how costly are the resulting distortions? This paper answers these questions in the
context of the credit market in India. Integrating theories of political budget cycles with theo-
ries of tactical electoral redistribution yields a compelling framework to test for the presence of
capture. I
nd that government-owned banks are subject to substantial capture: the amount
of agricultural credit lent by public banks is 5-10 percentage points higher in election years
than in years following an election, and in election years more loans are made to districts in
which the ruling state party had a narrow margin of victory (or a narrow loss) in the previous
election. This targeting does not occur in non-election years. Politically motivated loans are
costly: they are less likely to be repaid, and election year credit booms do not measurably
a¤ect agricultural output.
- Publication Type: WCFIA Working Paper
- Published Date: April 2, 2007
- Field of Interest: International Economics
- Cole, Shawn A. "Fixing Market Failures or Fixing Elections? Elections, Banks and Agricultural Lending in India." Working Paper 2008-0015, Weatherhead Center for International Affairs, Harvard University, April 2, 2007.
