Three Essays on Local Economic Development in India

Abstract

This dissertation examines the determinants of local economic and political development in India. In the first chapter, I study the impact that agricultural income shocks have on the local nonfarm economy. I find that positive rainfall shocks induce significant employment growth, not in the rural areas where agricultural production takes place but in the nearby towns. Manufacturing firms in particular respond to changes in agricultural production. Further investigation suggests that the most likely mechanism is a capital channel by which local agricultural surplus funds investments in urban manufacturing. In the second chapter, I examine the relationship between natural resource wealth and political outcomes. The interaction of mineral deposit locations and global price changes provide exogenous variation in the value of mineral wealth of state legislative assembly constituencies in India. I find that margins of victory, incumbency advantages and politician criminality are increasing in local mineral wealth. I test three channels for the criminality effect: (i) greater criminality in office; (ii) adverse selection of politicians into the political system; and (iii) greater success of criminal candidates in elections, finding the strongest evidence for the third effect. Finally, in the third chapter, I evaluate the importance of transportation costs to rural economic development. I take advantage of the allocation rules of a large-scale road construction program in India to estimate the impact of village roads on nonfarm economic activity. I find that new paved roads lead to large increases in village employment. Roads lead to an increase in firm size, suggesting that firms are inefficiently small when transport costs are high. Further, I find evidence that roads are most effective in the presence of electricity, suggesting complementarities between infrastructural investments.