Essays on the Political Economy of Development

Economic development is deeply connected with politics. Policies that foster economic growth and reduce poverty typically rely on politicians who might prefer specific groups and have career concerns. This dissertation consists of three chapters related to this issue. Chapter 1 studies the role that political time horizons play on investments in service delivery. It leverages a policy change in Mexico that removed a ban on the consecutive re-election of local politicians in the context of staggered local elections. The results show that mayors affected by the reform make significantly more investments in the ability of their local governments to provide public goods; they also borrow less and finance their investments through less corrupt practices. The chapter presents a theoretical framework that discusses some of the key incentives at play and proposes a simple strategy to parse out these incentives empirically. The estimated treatment effects are more pronounced in places where mayors face a higher probability of re-election, suggesting that the longer horizon effect is a key incentive driving the results. Chapter 2 studies the role that political parties play in the allocation of credit by development banks. Using a regression discontinuity design in the context of loans to municipal governments in Mexico, it shows that municipal governments represented by a mayor of the presidential party are significantly more likely to receive new loans and more resources. These effects are driven by the allocation of credit by the largest state-owned development bank, whereas there is no effect on the allocation of credit by private banks. Municipalities where a candidate of the presidential party won spend more in debt services, yet the evidence overall indicates that they do not increase service delivery. Chapter 3 studies whether voters reward politicians for the provision of public infrastructure. Leveraging different sources of variation in the allocation of a public infrastructure program in Mexico, it finds that voters living near the infrastructure projects do not reward municipal and federal incumbents. The evidence suggests that a mechanism driving the allocation of this program is an infrastructure-for-money mechanism