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The Politics of Market Selection


  • Quintero Luis Eduardo



This work seeks to determine the effect of political power of economic sectors in the policies their plants face, in their market survival probabilities, and in the aggregate productivity of the economy. Data from colombian manufacturing sector at the plant level for the period 1990-1998 is used to estimate several empirical models. Also, political power variables are constructed: dummy variables that indicate membership to economic associations and economic corporate groups, and an index that captures both the economic importance of the plant´s economic sector in the geographical region where it is located, and the electoral influence of that region in the national political scene. In the first place, we estimate the effect of political power on policy variables. For these, we use nominal tariffs, mainly because they show differential treatments between sectors, because they affect all sectors in the economy, and because they represent policies in a quantitatively way, and thus are subject to quantitative modeling. We found that political power of sectors has a significant and positive effect on the tariffs their plants face. This happens both when it comes from belonging to an organized group that can perform lobby activities and when it comes from the political support that the sector´s welfare implies for policy makers. In the second place, a market selection model is estimated to determine the effect of political power on the probability of exit of a plant. We found that a plant that belongs to a more politically influential sector can survive in the market with productivity levels that would otherwise make it go out of business (compared to plants belonging to sectors with less political power). Third, the economy´s aggregate productivity is calculated with and without the effect of political power. We find that, since this effect allows less productive plants to survive, aggregate productivity is decreased an average of 9.86% per year.

Suggested Citation

  • Quintero Luis Eduardo, 2006. "The Politics of Market Selection," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, June.
  • Handle: RePEc:col:000090:003620

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    References listed on IDEAS

    1. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special interests and political business cycles," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 597, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. Eric J. Bartelsman & John Haltiwanger & Stefano Scarpetta, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," Tinbergen Institute Discussion Papers 04-114/3, Tinbergen Institute.
    3. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    4. Echavarría Juan José & María Angélica Arbeláez & María Fernanda Rosales, 2006. "La productividad y sus determinantes:el caso de la industria colombiana," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, June.
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    Cited by:

    1. Baybars Karacaovali, 2011. "Trade Policy Determinants and Trade Reform in a Developing Country," Working Papers 201115, University of Hawaii at Manoa, Department of Economics.
    2. Baybars Karacaovali, 2012. "Trade Policy Determinants and Trade Reform in a Developing Country: The Case of Colombia," Working Papers 201220R, University of Hawaii at Manoa, Department of Economics.
    3. Baybars Karacaovali, 2011. "Productivity Matters For Trade Policy: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 33-62, February.
    4. Baybars Karacaovali, 2015. "Varying Political Economy Weights of Protection: The Case of Colombia," Economics and Politics, Wiley Blackwell, vol. 27(2), pages 290-312, July.
    5. Marcela Eslava & Marcela Melendez, 2009. "Politics, Policies and the Dynamics of Aggregate Productivity in Colombia," Research Department Publications 4633, Inter-American Development Bank, Research Department.

    More about this item


    Market Structure and performance; Policy making analysis; aggregate productivity; political processes;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior


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