Shared Identity and Entrepreneurship

Journal: Journal of Economic Behaviour and Organisation

Abstract: We show that shared identity with elected leaders helps entrepreneurs form new and productive businesses. Following close Indian elections during 2006 − 16, local firm entry by entrepreneurs belonging to the same cultural groups as winning candidates in-creases. Despite benefitting from preferential behavior, and in contrast to earlier work, such politically connected entrants are more productive than incumbent in-group firms. Simultaneously, business formation by out-group entrepreneurs does not decline. The high TFP of in-group entrants suggests barriers that previously precluded the entry of potentially high-performing firms. Administrative entry costs seem to be a key barrier that in-group politicians help ease.