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Home Bias in U.S. Politics

SSRN, ISSN: 1556-5068
2018
  • 0
    Citations
  • 2,715
    Usage
  • 8
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    2,715
    • Abstract Views
      2,440
    • Downloads
      275
  • Captures
    8
  • Ratings
    • Download Rank
      222,656

Article Description

Politicians preferentially treat firms in their electoral districts. We develop a model of home bias, which shows that a politician with limited political capacity grants a favor to local firms over non-local firms to satisfy voters and induce (re-)elections. We identify domestic firms that run business in politicians' constituency as local firms, while foreign firms with little economic exposure in the constituency as non-local firms. Using 1% close congressional elections from 1997 to 2014, we find that a narrow victory of connected politicians results in a 17 to 23 percent increase in value for local firms, whereas only a 4 to 12 percent increase in value for foreign firms. The results are evident when connected politicians are house representatives, who run elections in economically distressed states with high corruptions during the post-2007 financial crisis period. Our results are robust to controlling for heterogeneous U.S. economic exposures of foreign firms.

Bibliographic Details

Changhyun Ahn; Jae Yung Kim; Jongsub Lee

Elsevier BV

Multidisciplinary; Close congressional elections; local voters and politicians; campaign contributions; home biases; foreign value discount

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