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Salomé BASLANDZE (EIEF) “Connecting to Power: Political Connections, Innovation, and Firm Dynamics”

March 18, 12:15 pm - 1:30 pm

Time: 12:15pm – 13:30 pm
Date: 18th of March 2019
Place: Room 3001

Salomé BASLANDZE (EIEF) “Connecting to Power: Political Connections, Innovation, and Firm Dynamics”

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.

Details

Date:
March 18
Time:
12:15 pm - 1:30 pm
Event Categories:
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Organizers

Edouard CHALLE
Julien PRAT