we first compare sectors across states with and without senator serving as the chairman in the year when committees are formed (2003, 2006 and 2009). Given the data availability, we focus on five sectors: Agriculture, Commerce, Transport, Energy and Telecommunications. We obtain sector indicators from the _Banco de Informacion_ of the National Institute of Statistics and Geography (INEGI) and compile data at the state-year level on the performance of different sectors across states and over time. The data set measures the level of activities in each sector with different indicators and contains information on total agricultural production, gross production of the commerce sector, registered vehicles in circulation, users of electric energy, and length of highway network, proxying for the performance of the agriculture, commerce, transport, energy and telecommunications sectors respectively.

The results presented in Table 10 contradict the endogenous selection hypothesis. For states with a senator chairing the committee, the level of economic activity in the corresponding sector is not significantly different from that of the same sector in the other states. For example, the share of agricultural production relative to the state’s GDP in states with a senator heading the agriculture commission is slightly higher than that in the other states (6.4 percent vs 4.6 percent), but this difference is not statistically significant. To exclude the possibility that the appointment is based on expectation of sector performance instead of current level, we also compare the growth rate of the sector-level activities in the bottom of Panel A. Again, we find no evidence suggesting that the economic activity in the corresponding sector of the chairman’s sector is significantly different from that of the same sector in other states of Mexico.

In addition to the sector activity, we also examine in Panel B general economic conditions of the state and compare two key economic indicators, GDP and employment growth, for the chairman’s state versus other states when the committee is formed. As an extension, we plot the time series of GDP and employment growth rate throughout our sample periods from 2004 to 2012 in Figure 3. As can be observed, the economic development for the chairman’s state exhibits no significant difference when compared to the rest of the Mexican states. Taken together, the results support our identification strategy of using the appointment of chairman as an exogenous variation of political connection as they are not likely to be endogenously determined.

# **_VI_ .B. The Gradient of Political Power**

We perform two other robustness checks of our results. Specifically, we focus on two types of states that should be at the top of the power pyramids. That is, those states that have more than one senator chairing a committee, and those states with a chairman serving in a core committee with relatively higher importance, according to a more systematic measure. The political lending hypothesis predicts that, all else being equal, we should observe a stronger pattern for those states given their greater influence on bank lending. Table 11 reports the regression results showing the effect of having more than one chairman at a time. In all specifications, we include a full set of controls and fixed-effects similar to our benchmark exercise. In Panel A, we find that firms 21