CGD in the News

Cementing Corrupt Political Relationships (Wall Street Journal)

January 10, 2012

Research fellow Milan Vaishnav and non-resident fellow Devesh Kapur's paper on concrete and corruption in India was featured on the WSJ's Review blog.

From the article:

Problem: How do you quantify illegal campaign contributions in India? One solution: By tracking the rise and fall of real-estate developers’ use of cement.

That huge sums flow, off the books, to Indian politicians at election time is well known, although difficult to document. As in the United States, elections in the world’s most populous democracy are growing ever more expensive, and campaign financing there is highly privatized and unregulated. Two researchers hypothesized that political payoffs would be substantial enough to cause a liquidity problem for some companies. They decided to focus on real-estate developers, who are especially beholden to state-level politicians, who hold great power over land-use decisions. Since India lacks fine-grained data about construction trends, the researchers looked for a proxy — and settled on how much cement was consumed by companies (cement being the “indispensable ingredient in Indian construction).

They looked at monthly cement consumption from April 1995 to March 2010, in 17 Indian states, representing more than 90% of the population. Indeed, in the month of a state election, cement consumption declined by 12-15%. The amount of the drop was larger, 38%, when a state election coincided with a national election—two sets of politicians would have their hands extended — and larger in heavily urban states, which have richer contracts to be won. The declines were also larger in the case of scheduled elections (as opposed to those caused by no-confidence votes), which fit the authors’ thesis.

The authors statistically ruled out other possible causes of the consumption declines, and they noted that cement production wasn’t affected.

(Why wouldn’t the construction firms “smooth” their political expenditures by spreading them even across the year, rather than waiting for an election month? Economic theory might predict such behavior, the authors said, but politicians would not be interested in creating payment plans for illegal contributions: They’d want lump sums.)

Source: “Quid Pro Quo: Builders, Politicians, and Election Finance in India,” Devesh Kapur and Milan Vaishnav, Center for Global Development Working Paper (December)

Read it here.