The Politics of Industrial Displacement: Evidence from Special Economic Zones

Abstract

How do politicians locate industrial projects, such as special economic zones and industrial townships, that have highly localized costs (population displacement) and benefits (jobs and infrastructure)? I argue that risk-averse politicians minimize the costs of displacement for industrial projects by locating the projects in areas where they have little existing support. In order to maximize the benefits of the projects, politicians also locate the projects far from state or national borders to ensure that the future benefits of the projects accrue only to potential voters. To test this argument, I geocode the locations of public and private special economic zones in India and use private zones as a control group for public zones. The analysis finds support for the argument in that public zones are significantly more likely to be located in constituencies where the government performed badly in prior elections and far from state and national borders.