NDLI: Policy Uncertainty and Manufacturing Investment: Evidence from U.S. State Elections

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Policy Uncertainty and Manufacturing Investment: Evidence from U.S. State Elections

Content Provider	Scilit
Author	Shelton, Cameron A. Falk, Nathan
Copyright Year	2016
Description	Journal: SSRN Electronic Journal We estimate the effect of electorally induced policy uncertainty on investment in the manufacturing sector. Because state governors exercise considerable influence over legislation and considerable discretion over regulation and permitting, and because the policies relevant to business investment vary systematically by party, uncertainty over the partisan affiliation of the future governor is a source of political risk to firms considering business investment. More importantly, the lack of an incumbent in a race due to term limits raises uncertainty over the outcome, providing a convincing instrument that allows us to estimate causal effects. We find that, in a state with average partisan polarization, in the calendar year of a gubernatorial election, the elasticity of investment to the eventual margin of victory is 0.027. Both the significance and magnitude of this result are robust to various controls, measures, and estimators. Importantly, the investment decline is not reversed the following year. We show that own-state uncertainty is associated with a large and significant rise in neighboring states’ investment, suggesting that rather than postponing investment to the future, the effect of policy uncertainty at the subnational level is to drive investment to alternative sites.
Related Links	https://www.cesifo-group.de/DocDL/cesifo1_wp5846.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2756117
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.2756117
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2016-03-15
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Political Science Policy Uncertainty Manufacturing Investment Gubernatorial Election Partisan Polarization
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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