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Connecting to Power: Political Connections, Innovation, and Firm Dynamics / Ufuk Akcigit, Salomé Baslandze, Francesca Lotti.
- Format:
- Book
- Author/Creator:
- Akcigit, Ufuk.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w25136.
- NBER working paper series no. w25136
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Connecting to Power
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, 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 generates a number of theoretical testable predictions and highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity. We test the predictions of our model using a brand-new dataset on Italian firms and their workers, 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.
- Notes:
- Print version record
- October 2018.
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