Political Connections and Trade Expansion: Evidence from Chinese Private Firms

Abstract

The investigation of the value of political connections has attracted economists' interests in the recent years. This paper, by using a survey of Chinese private firms in 2004, empirically studies the impact of political connections (measured as the deputy to the Chinese People's Congress) on trade expansion. It is found that political connections lead to an increase of trade expansion. Meanwhile, the expansion into other administrative areas requires a high hierarchical level of political connections, i.e., at the corresponding administrative level or above. Furthermore, it is found that political connections affect trade expansion by overcoming insecure property rights institutions and inefficient contracting institutions.

Keywords: Political Connections, Trade Expansion, Economic Institutions, Property Rights Institutions, Contracting Institutions, Chinese People's Congress

JEL Classification: P26, D21, F18