Is There a Local Knowledge Advantage in Federations? Evidence from a Natural Experiment
Abstract: In economics the local knowledge advantage is probably one of the key arguments in favor of decentralizing the public sector. However, the empirical investigations of this particular effect have been scarce. This paper tests the existence of the local knowledge advantage in a real world setting. Specifically, it looks at the variation of local knowledge across regions based on the origin and careers of regional politicians, assuming that politicians, who have spent a longer period of their life in a particular region, possess better knowledge of that region than outsiders. In order to avoid the endogeneity problem, the paper investigates how local origin affected the performance of the politicians in a natural experiment environment, studying the responses of regional governors in Russia to the disastrous forest fires in 2010. We confirm that local knowledge improves the performance of the governors. However, in a highly centralized federation like Russia, the effect is conditional on the access to federal resources through close ties to the federal center.
