Role of political connections in land investment: evidence from rural India

Abstract

Decentralization in India was implemented as a remedy for the ineffectiveness of government schemes in reaching and benefitting the poor and the necessity of involvement and participation of the very citizenry at the grassroots that are most in need of government intervention and support. However, if this participation itself tends to be dominated by the elite, or prone to corruption, and therefore exclusionary, it becomes a case of the remedy being as bad, if not worse than the malaise. It is in light of the above that this paper attempts a two-part analysis of the IHDS-I and II (India Human Development Survey, first and Second Round) data pertaining to Indian Rural Households, wherein the first part, we examine whether their political connections or lack thereof determine the investment in land by these households. Upon finding that this is indeed the case, the second part is devoted to probing into the significance of possible links that may drive such a positive relationship. Our results show that access to financing instruments of investment by a rural household is indeed more probable in the case of a politically connected household vis-à-vis one lacking such connections.

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Notes

  1. 1.

    In China, Li et al. (2016) show that for politically connected households, both loan applications and loans approved are higher in number.

  2. 2.

    Thomas and Tarp (2014) deal with the issue of reverse causality in a similar manner.

  3. 3.

    In survey states studied in the paper, Besley et al. (2007) find the annual income gain from BPL card was roughly five percent (5%) of an agricultural labor household’s annual expenditure in 2000–2001.

  4. 4.

    Thomas and Tarp (2014) find evidence that in Vietnam, politically connected households are more likely to receive public transfers compared to unconnected households. It is mainly used as a post-investment insurance strategy in case investment fails.

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Acknowledgements

We are grateful to Dr. Rohit (CESP, JNU) for his useful comments and suggestions. We are also grateful to two referees for their helpful comments. Errors, if any, are completely ours.

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Correspondence to Malik Altaf Hussain.

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Appendix

Appendix

Table 6 Overall summary statistics
Table 7 Summary statistics for politically connected and unconnected households separately

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Hussain, M.A., Tyagi, M. Role of political connections in land investment: evidence from rural India. Const Polit Econ 31, 344–362 (2020). https://doi.org/10.1007/s10602-019-09293-3

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Keywords

  • Political connections
  • Corruption
  • Land investment
  • Decentralization
  • Panchayats

JEL Classification

  • D72
  • D73
  • P26
  • O10