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Political Persistence, Connections and Economic Growth

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  • Giorgio Bellettini

    (University of Bologna)

  • Carlotta Berti Ceroni

    (University of Bologna)

  • Giovanni Prarolo

    (University of Bologna)

Abstract

Using data on a panel of 56 democratic countries in the period 1975-2004, we find evidence of a negative association between political stability and economic growth which is stronger and empirically more robust in countries with high bureaucratic costs. Motivated by these results, which contrast with previous contributions, we develop a model of growth with quality improvements where political connections with long-term politicians can be exploited by low-quality producers to defend their monopoly position and prevent innovation and entry of high-quality competitors. This requires that the incumbent politician remains in office and that the red-tape cost advantage granted by political connections is large relative to the quality upgrade related to innovation. Consistently with our empirical findings, the model delivers a negative association between the probability that the incumbent politician remains in office and average economic growth in the presence of high bureaucratic costs.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.107.

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Date of creation: Dec 2009
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Handle: RePEc:fem:femwpa:2009.107

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Keywords: Political Persistence; Growth; Innovation;

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  1. Giovanni S.F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel data models with a small number of individuals," KITeS Working Papers 165, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jun 2005.
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  7. Antonio Merlo & Vincenzo Galasso & Massimiliano Landi & Andrea Mattozzi, 2008. "The Labor Market of Italian Politicians," Working Papers 15-2008, Singapore Management University, School of Economics, revised Oct 2008.
  8. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
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  12. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
  13. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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Cited by:
  1. Vincenzo Atella & Lorenzo Carbonari, 2013. "When Elders Rule:Is Gerontocracy Harmful for Growth?," CEIS Research Paper 263, Tor Vergata University, CEIS, revised 08 Aug 2013.

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