JC_Swapnil

This is an interesting political economy of development topic. As you point out there have been a few recent papers on the subject in India, and you offer elements of a review. The proposal should try to be more explicit on the questions and possible data sources you might explore, as well as the theoretical framing/identification strategies you might employ.

Some big questions.

• What kind of loan forgiveness. Clarify. Are you referring primarily to policies that forgave state loans, or do they extend to policies that forced private loans as well? You mention a federal waiver This will help the reader understand the context and think about likely economic and distributive outcomes.

• What determined farm-loan waivers? You suggest they're timed to win elections, but also point to other explanations as well (e.g. depending on how it is done, as a way to smooth out aggregate shocks). There seem to be interesting testable propositions here. Can you spell some out a few? Just tossing out some rough ideas:

  • It would seem that an incumbent party might be of two minds about this. It might help them win an election, but it might also saddle them with problems after an election. Can you explore the timing of these events? Is it at the start of the term of office (i.e. they deliver on an election promise) or near the end when they seek re-election? Are there spillover effects (e.g. one state's loan forgiveness likely to trigger similar policy in bordering state?)
  • Are there any likely exogenous 'shifters'? e.g. changes in Federal law, natural events etc?

• What kinds of data might you have access to? If this is a research proposal and not just a literature review, you should explain possible data sources.

  • A number of papers study variation in the timing of redistributive reforms (branch banking, land reform) on outcomes on (e.g. Besley and Burgess 2000, Burgess and Pande, 2005; Conning and Robinson, 2007) using a panel of states. These tend to focus on broad state outcomes. Are you thinking of something similar, or do you expect to use micro-data that might give you a measure of impacts across households and groups?

• What is the impact of these policies? If you are going to think carefully about identification, this is inextricably connected to the earlier question on where loan waivers happen (i.e. whether treated as exogenous or endogenous).

• The types of outcomes you can focus on depend on the data you can obtain. Do these tend to benefit small, medium or larger farmers? Politically connected farmers?

Point to theoretical framing that might motivate testable hypotheses. When might politically determined loan forgiveness be efficient (one might think here about the literature on sovereign debt and debt overhangs), and therefore potentially raise productivity?

When is it likely instead to be politically driven and inefficient? What are the potential inefficiencies? There are many possibilities here, but I'll mention one:

• forgiveness may lead less capable farmers to remain in the sector. Harsh as this view sounds, the argument would be that in order to raise productivity in the ag sector and release labor to other sectors, market differentiation and consolidation in the agricultural sector have to be allowed to happen, so policies that interrupt such market forces (e.g. caps on land sizes, interventions such as this that make it hard to liquidate) delay transitions. One paper that looks at an avenue of this sort with farming skills (without making mention of farm forgiveness) is:

Lagakos, D., Waugh, M.E., 2013. Selection, Agriculture, and Cross-Country Productivity Differences. The American Economic Review 103, 948–980.

A simpler version is the old critique of political interventions in farm credit markets: the claim that resource allocation determined by political considerations will have lower rates of return (and hence transformation) than market-determined.

I could list more. Do you have a framework and other hypotheses?

Some possibly related References

• Khwaja, Asim Ijaz, and Atif Mian. 2005 "Do lenders favor politically connected firms? Rent provision in an emerging financial market." The Quarterly Journal of Economics 120, no. 4: 1371-1411.

• Burgess, R., Pande, R., 2005. Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment. American Economic Review 95, 780–795.

• Cole, S., 2009. Fixing market failures or fixing elections? Agricultural credit in India. American Economic Journal: Applied economics 1, 219–50.

• Giné, X., Kanz, M., 2018. The economic effects of a borrower bailout: evidence from an emerging market. The Review of Financial Studies 31, 1752–1783.

• Kranton, R.E. and Swamy, A.V., 1999. The hazards of piecemeal reform: British civil courts and the credit market in colonial India. Journal of Development Economics, 58(1), pp.1-24.