The impact of electoral rules on manufacturing industries: evidence of disaggregated data of 61 industries of 55 countries

Abstract

Electoral rules are found to induce different incentives to politicians and have an effect on the economic performance of countries. The literature is however silent on whether this effect is homogeneous across industries within a country. This paper argues with an analytical model that an incumbent government under majoritarian rules tends favour larger industries so as to secure votes from the employees and relatives of those industries. By constructing and exploiting an original dataset that covers disaggregated data on output growth of 61 industries in 55 countries, we find that larger industries in terms of employment size grow slower than smaller ones under nonmajoritarian electoral rules, but such a correlation is absent under majoritarian rule. This result is robust across different regression models and could well be explained by favouritism of governments towards larger industries.