This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Economics of Politically Connected Firms

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jay Pil Choi ()
Marcel Thum ()

Additional information is available for the following registered author(s):

Abstract

Political connections between firms and autocratic regimes are not secret and often even publicly displayed in many developing economies. We argue that tying a firm’s available rent to a regime’s survival acts as a credible commitment forcing entrepreneurs to support the government and to exert effort in its stabilization. In return, politically connected firms get access to profitable markets and are exempted from the regime’s extortion. We show that such a gift exchange between government and politically connected firms can only exist if certain institutional conditions are met. In particular, the stability of the regime has to be sufficiently low and the regime needs the power to exploit independent firms. We also show that building up a network of politically connected firms acts as a substitute for investments in autonomous stability (such as spending on military and police force). The indirect strategy of stabilizing a regime via politically connected firms gradually becomes inferior when a regime’s exploitative power rises.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/DocCIDL/cesifo1_wp2025.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2025.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:ces:ceswps:_2025

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de

For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).

Related research
Keywords: politically connected firms; clientelism; political stability;

Find related papers by JEL classification:
H10 - Public Economics - - Structure and Scope of Government - - - General
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March. [Downloadable!]
  2. Kurer, Oskar, 1993. " Clientelism, Corruption, and the Allocation of Resources," Public Choice, Springer, vol. 77(2), pages 259-73, October.
  3. Ferguson, Thomas & Voth, Hans-Joachim, 2005. "Betting on Hitler - The Value of Political Connections in Nazi Germany," CEPR Discussion Papers 5021, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Robinson, James A & Verdier, Thierry, 2002. "The Political Economy of Clientelism," CEPR Discussion Papers 3205, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Jay Pil Choi & Marcel Thum, 2004. "The Economics of Repeated Extortion," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 203-223, Summer.
    Other versions:
  6. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September. [Downloadable!] (restricted)
  7. Agrawal, Anup & Knoeber, Charles R, 2001. "Do Some Outside Directors Play a Political Role?," Journal of Law & Economics, University of Chicago Press, vol. 44(1), pages 179-98, April.
  8. Choi, Jay Pil & Thum, Marcel, 2003. "The dynamics of corruption with the ratchet effect," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 427-443, March. [Downloadable!] (restricted)
    Other versions:
  9. Faccio, Mara & Parsley, Davie, 2007. "Sudden Deaths: Taking Stock of Geographic Ties," MPRA Paper 6042, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  10. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1371-1411, November. [Downloadable!] (restricted)
  11. Alberto Chong & Mark Gradstein, 2007. "On the Determinants and Effects of Political Influence," RES Working Papers 4540, Inter-American Development Bank, Research Department. [Downloadable!]
  12. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alberto Chong & Mark Gradstein, 2007. "Sobre los determinantes y efectos de la influencia de politica (On the Determinants and Effects of Political Influence)," RES Working Papers 4541, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Yakovlev, Andrei, 2009. "State-business relations and improvement of corporate governance in Russia," BOFIT Discussion Papers 26/2008, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  3. Alberto Chong & Mark Gradstein, 2007. "On the Determinants and Effects of Political Influence," RES Working Papers 4540, Inter-American Development Bank, Research Department. [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS indexes over 800000 items of research in Economics alone.

This page was last updated on 2009-11-3.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.