Fleeing a Lame Duck: Policy Uncertainty and Manufacturing Investment in US States
American Economic Journal: Economic Policy
vol. 10,
no. 4, November 2018
(pp. 135-52)
(Complimentary)
Abstract
It is found that electorally-induced policy uncertainty decreases manufacturing investment in US states. In a state with average partisan polarization, the elasticity of election-year investment to a specific measure of policy uncertainty is -0.027. When the incumbent governor is term-limited, there is greater uncertainty over the outcome, providing an instrument to demonstrate this effect is causal, not simply coincidental. Moreover, manufacturing investment does not rebound following the election. Rather, own-state uncertainty is associated with a large and significant coincident rise in neighboring states' investment. These findings suggest that policy uncertainty at the sub-national level drives investment to alternate sites.Citation
Falk, Nathan, and Cameron A. Shelton. 2018. "Fleeing a Lame Duck: Policy Uncertainty and Manufacturing Investment in US States." American Economic Journal: Economic Policy, 10 (4): 135-52. DOI: 10.1257/pol.20160365Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E22 Investment; Capital; Intangible Capital; Capacity
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- L60 Industry Studies: Manufacturing: General
- R11 Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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