Knowing the Right Person in the Right Place: Political Connections and economic Growth

41 Pages Posted: 24 Feb 2009

See all articles by Giorgio Bellettini

Giorgio Bellettini

University of Bologna - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Carlotta Berti Ceroni

University of Bologna - Department of Economics

Giovanni Prarolo

University of Bologna; University of Milan - Centro Studi Luca d'Agliano (LdA)

Date Written: February 2009

Abstract

Using data on a panel of 56 democratic countries in the period 1975-2004, we find evidence of a negative association between political stability and economic growth which is stronger and empirically more robust in countries with high bureaucratic costs. Motivated by these results, which contrast with previous contributions, we develop a model of growth with quality improvements where political connections with long-term politicians can be exploited by low-quality producers to defend their monopoly position and prevent innovation and entry of high-quality competitors. This requires that the incumbent politician remains in office and that the red-tape cost advantage granted by political connections is large relative to the quality upgrade related to innovation. Consistently with our empirical findings, the model delivers a negative association between the probability that the incumbent politician remains in office and average economic growth in the presence of high bureaucratic costs.

Keywords: political persistence, growth, innovation

JEL Classification: O43

Suggested Citation

Bellettini, Giorgio and Berti Ceroni, Carlotta and Prarolo, Giovanni, Knowing the Right Person in the Right Place: Political Connections and economic Growth (February 2009). CESifo Working Paper Series No. 2553, FEEM Working Paper No. 107.2009, Available at SSRN: https://ssrn.com/abstract=1347965

Giorgio Bellettini (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy
+39 051 2098136 (Phone)
+39 051 2098040 (Fax)

HOME PAGE: http://sites.google.com/site/giorgiobellettiniwebpage/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Carlotta Berti Ceroni

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy
+39 051 2098017 (Phone)
+39 051 2098040 (Fax)

Giovanni Prarolo

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

HOME PAGE: http://www2.dse.unibo.it/prarolo/

University of Milan - Centro Studi Luca d'Agliano (LdA) ( email )

Via P. Amedeo 34
Milano, Mi 20122
Italy

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