Connecting to Power: Political Connections, Innovation, and Firm Dynamics

70 Pages Posted: 4 Oct 2018

See all articles by Ufuk Akcigit

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Salomé Baslandze

Federal Reserve Bank of Atlanta

Francesca Lotti

Bank of Italy

Multiple version iconThere are 4 versions of this paper

Date Written: October 3, 2018

Abstract

Do political connections affect firm dynamics, innovation, and creative destruction? We study Italian firms and their workers to answer this question. Our analysis uses a brand-new dataset, spanning the period from 1993 to 2014, where we merge: (i) firm-level balance sheet data; (ii) social security data on the universe of workers; (iii) patent data from the European Patent Office; (iv) the national registry of local politicians; and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with a larger share of politically connected firms feature worse firm dynamics. When compared to their competitors, market leaders are much more likely to be politically connected and much less likely to innovate. In addition, political connections relate to a higher rate of survival, as well as growth in employment and revenue but not in productivity – the result that we also confirm using a regression discontinuity design. We build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model highlights the new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity.

Keywords: Political connections, creative destruction, firm dynamics, innovation, productivity

JEL Classification: O3, O4, D7

Suggested Citation

Akcigit, Ufuk and Baslandze, Salome and Lotti, Francesca, Connecting to Power: Political Connections, Innovation, and Firm Dynamics (October 3, 2018). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-72, Available at SSRN: https://ssrn.com/abstract=3260274 or http://dx.doi.org/10.2139/ssrn.3260274

Ufuk Akcigit (Contact Author)

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

Salome Baslandze

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
30309 (Fax)

HOME PAGE: http://https://sites.google.com/site/sabaslandze/home

Francesca Lotti

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
92
Abstract Views
925
rank
218,300
PlumX Metrics