INSTITUTE OF DEVELOPING ECONOMIES IDE Discussion Papers are preliminary materials circulated to stimulate discussions and critical comments IDE DISCUSSION PAPER No. 523 Economic Impact of Political Protests (Strikes) on Manufacturing Firms: Evidence from Bangladesh Abu S. SHONCHOY* and Kenmei TSUBOTA** March 2015 Abstract Political protests in the form of strikes, locally known as hartal, remain quite common in the Indian subcontinent countries. Such a form of protests is associated with mass movement, intended to cause a total shutdown of economic activities and often results in coercion, violence, and damage to both public and private properties. Utilizing the World Bank Enterprise survey data of 2007 and 2013 of Bangladesh, this study examines the impacts of hartals on manufacturing firms. We find that political protests significantly increase costs for firms. Using flexible cost function based on factor analysis we see that the factor-neutral effect of strikes is positive and statistically significant, showing evidence of a reduction in firm productivity due to hartals. However, we did not find any evidence for systematic factor re-optimization by firms – in response to political strikes – suggesting that firms do not reallocate factor shares to tackle uncertain and irregular shocks like hartals. Key Words: Political strikes, Translog cost function, Factor biased technology JEL Classification Codes: D24, D74, O14 **Institute of Developing Economies-JETRO (
[email protected]); The Institute of Developing Economies (IDE) is a semigovernmental, nonpartisan, nonprofit research institute, founded in 1958. The Institute merged with the Japan External Trade Organization (JETRO) on July 1, 1998. The Institute conducts basic and comprehensive studies on economic and related affairs in all developing countries and regions, including Asia, the Middle East, Africa, Latin America, Oceania, and Eastern Europe.