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.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
In China, Li et al. (2016) show that for politically connected households, both loan applications and loans approved are higher in number.
Thomas and Tarp (2014) deal with the issue of reverse causality in a similar manner.
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.
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.
Banerjee, A. V. (1997). A theory of misgovernance. The Quarterly Journal of Economics,112(4), 1289–1332. https://doi.org/10.1162/003355300555484.
Bardhan, P., & Mookherjee, D. (2000). Capture and governance at local and national levels. The American Economic Review,90(2), 135–139. https://doi.org/10.1257/aer.90.2.135.
Beck, T., Büyükkarabacak, B., Rioja, F., & Valev, N., (2008). Who gets the credit? And does it matter? Household versus firm lending across countries. Policy Research Working Paper No. 4661. Washington, DC: The World Bank.
Besley, T. (1995). Property rights and investment incentives: Theory and evidence from Ghana. The Journal of Political Economy,103(5), 903–937.
Besley, T., Pande, R., & Rao, V. (2007). Political economy of panchayats in South India. Economic and Political Weekly,42(08), 661–666.
Das, U. (2015). Does political activism and affiliation affect allocation of benefits in the rural employment guarantee program: Evidence from West Bengal, India. World Development,67, 202–217.
Dasgupta, A., (2016). Rethinking clientelism: Politics of service delivery in rural India. International Growth Centre online Blog.
Desai, S., Vanneman, R., & National Council of Applied Economic Research, New Delhi. (2005). India human development survey (IHDS). ICPSR22626-v8. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2010-06-29. https://doi.org/10.3886/ICPSR22626.v8.
Desai, S., Vanneman, R., & National Council of Applied Economic Research, New Delhi. (2011–12). India human development survey-II (IHDS)-II. ICPSR36151-v2. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2015-07-31. https://doi.org/10.3886/ICPSR36151.v2.
Faccio, M. (2006). Politically connected firms. The American Economic Review,96(1), 369–386.
Feng, X., Johansson, A. C., & Zhang, T. (2014). Political participation and entrepreneurial initial public offerings in China. Journal of Comparative Economics,42(2), 269–285.
Fisman, R., & Gatti, R. (2002). Decentralization and corruption: Evidence across countries. Journal of Public Economics,83(3), 325–345.
Gaiha, R., & Kulkarni, V. (2002). Panchayats, communities and the rural poor in India. Journal of Asian and African Studies,37(2), 38–82. https://doi.org/10.1177/002190960203700203.
Gehlbach, S., & Sonin, K., (2004). Businessman candidates: Special-interest politics in weakly institutionalized environments. CEPR Discussion Paper No. 4822.
Goldstein, M., & Udry, C. (2008). The profits of power: Land rights and agricultural investment in Ghana. Journal of Political Economy,116(6), 981–1022.
Heller, P., Harilal, K. N., & Chaudhri, S. (2007). Building local democracy: Evaluating the impact of decentralization in Kerala, India. World Development,35(4), 626–648.
Huther, J., & Shah, A. (1998). Applying a simple measure of good governance to the debate on fiscal decentralization. Policy Research Working Paper No. 1894, The World Bank.
Khwaja, A. I., & Mian, A. (2005). Do lenders favor politically connected firms? Rent provision in an emerging financial market. The Quarterly Journal of Economics,120(4), 1371–1411.
Li, L., Hermes, N., & Lensink, R. (2016). Political connections and households' access to bank loans: Evidence from China. Semantic Scholar. https://www.semanticscholar.org/paper/Political-Connections-and-Households-'-Access-to-%3A-Li-Hermes/5ebf61f08fc153d9d7c0a302371bf802b06180ff.
Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics,110(3), 681–712. https://doi.org/10.2307/2946696.
Mo, H. P. (2001). Corruption and economic growth. Journal of Comparative Economics,29(1), 66–79.
Panda, S. (2014). Political connections and elite capture in a poverty alleviation programme in India. The Journal of Development Studies,51, 50–65.
Pande, R. (2007). Understanding political corruption in low-income countries. Centre for International Development at Harvard University Working Paper; No. 145.
Prud’homme, R. (1995). The dangers of decentralization. The World Bank Research Observer, 10(2), 201–220.
Rajasekhar, D., Babu, M. D., & Manjula, R. (2017). Are Elections to Grama Panchayats party-less? The Evidence from Karnataka. The Institute of Social and Economic Change, Bangalore working paper, No. 402.
Rosenzweig, M. R., & Wolpin, K. I. (1993). Credit market constraints, consumption smoothing, and the accumulation of durable assets in low-income countries: Investment in bullocks in India. Journal of Political Economy,101(2), 223–244.
Shleifer, A., & Vishny, R. W. (1993). Corruption. The Quarterly Journal of Economics,108, 599–617.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review,71(3), 393–410.
Tanzi, V. (1995). Fiscal federalism and decentralization: A review of some efficiency and macroeconomic aspects. Annual World Bank Conference on Development Economics,110, 291–302.
The World Bank. (1997). Helping countries combat corruption: The role of World Bank. Poverty Reduction and Economic Management, The World Bank.
Thomas, M., & Tarp, F. (2014). Political connections and land-related investment in rural Vietnam. Journal of Development Economics,110, 291–302.
Wooldridge, J. M. (Ed.). (2013). Introductory econometrics: A modern approach. Mason: South-Western Cengage Learning.
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.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
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
- Political connections
- Land investment