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

Ufuk Akcigit, Salome Baslandze and Francesca Lotti

No 13216, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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. We identify a leadership paradox: When compared to their competitors, market leaders are much more likely to be politically connected, but 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 – a 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 a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity.

Keywords: Political connections; Creative destruction; Firm dynamics; Innovation; Productivity (search for similar items in EconPapers)
JEL-codes: D7 O3 O4 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-bec, nep-ent, nep-ino, nep-lma, nep-pol, nep-soc and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
https://cepr.org/publications/DP13216 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Connecting to Power: Political Connections, Innovation, and Firm Dynamics (2023)
Working Paper: Connecting to power: political connections, innovation, and firm dynamics (2022)
Working Paper: Connecting to Power: Political Connections, Innovation, and Firm Dynamics (2020)
Working Paper: Connecting to Power: Political Connections, Innovation, and Firm Dynamics (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13216

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13216

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().