Bartering Bureaucrats: FDI And Rent Seeking

Helms B, Pandya S, Sekhri S. Bartering Bureaucrats: FDI And Rent Seeking. Working Paper.

Abstract

What motivates politicians to attract foreign direct investment (FDI)? Existing explanations, focused on industrialized democracies, emphasize credit claiming for economic prosperity. In many developing democracies, however, economic voting is weak. We argue that these politicians view FDI as a valuable source of rents for personal enrichment and campaign finance. We analyze a novel metric of politicians' revealed motives to attract FDI: how they allocate bureaucratic talent. We leverage India's 2005 FDI liberalization to estimate FDI's effects on transfers of Indian Administrative Service officers. We show that transfers increase in FDI-exposed districts, driven by movement of career-constrained officers, who have stronger incentives to facilitate politicians' rent seeking. We document heterogeneity consistent with rent seeking motives. Constrained bureaucrats are disproportionately appointed to powerful positions. Legislators representing FDI-exposed districts experience personal asset growth, but only when their party controls transfers. Our findings highlight how global economic integration can strengthen rent seeking motives.

Last updated on 10/20/2023