Elections, Protest, and Investment Plans: Evidence from a Natural Experiment in Russia
Abstract: How do political shocks influence economic behavior? We take advantage of a natural experiment to identify the effects of two political shocks on investment plans in Russian firms: the December 4th parliamentary elections and the protests of December 10th 2011. By comparing the responses of the “control” group of managers interviewed prior to the shock with those in the “treatment” group interviewed just after the shock, we estimate the impact of this political shock on reported economic plans. We find little support for the “political uncertainty” argument as firm managers were 12 percentage points more likely to report plans for a major investment after the protest shock than before. We find strong evidence for the “partisan” view of investment as firms with weak ties to the regime were about 12 percentage points more likely to report investment plans after the elections, while firms with strong ties to the regime were about 9 percentage points less likely to report plans for investment after the election. This paper contributes to debates on the economic impacts of political events, the value of political connections, and the importance of partisan preferences of economic agents. Moreover, it advances the literature by measuring managers’ political preferences directly rather than inferring them from firm characteristics.
