Dr Nimah Mazaheri (Tufts University, Massachusetts; IASH Fellow): The Specialization Curse: The Effect of Economic Specialization on Public Goods
This paper examines the relationship between economic specialization and government expenditures. We hypothesize that firms and citizens in economically specialized regions pressure politicians to invest in core economic sectors in lieu of spending on public goods that benefit the broader economy, such as education. We test our hypothesis by looking at the United States and India. We demonstrate a negative relationship between economically specialized U.S. states and education spending, and a positive relationship between economically specialized U.S. states and firm subsidies. Next, we examine the effect of an exogenous change in economic specialization by comparing Indian states created from federal bifurcation. We show how the creation of two highly specialized states (Bihar and Jharkhand) from a diversified state (Undivided Bihar) produced a decline in education spending but an increase in subsidies for core sectors. Our findings carry implications for the research on economic development, geography, federalism, and natural resource dependence.