Shared identity and entrepreneurship

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 increases. 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.