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Economic Transition and the Rise of Alternative Institutions: Political Connections in Putin's Russia

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  • Lamberova, Natalia
  • Sonin, Konstantin

Abstract

The economic transition from socialism in Russia has not resulted in the emergence of impersonal, rule-based institutions. Instead, the natural demand for institutions that protect property rights has led to the emergence of alternative, inefficient institutions such as that of cronyism - the practice of appointing personal acquaintances of the political leader to key positions. A political leader not constrained by institutions appoints cronies, as competent subordinates are more prone to switching allegiance to a potential challenger. As competence makes a bigger difference in a rule-based environment, such a leader has no interest in any institutional development. In a simple empirical exercise, using a data set that covers the richest Russians, we find a positive and significant effect of direct connections to the personal circle of President Putin on the wealth of businessmen. The magnitude of the effect varies at different levels of rents available for redistribution and "network centrality of a businessman": it is higher during the years of high oil prices, but is attenuated by the prominence of the businessman in the network.

Suggested Citation

  • Lamberova, Natalia & Sonin, Konstantin, 2018. "Economic Transition and the Rise of Alternative Institutions: Political Connections in Putin's Russia," CEPR Discussion Papers 13177, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13177
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    Cited by:

    1. Katarzyna Sałach & Michał Brzeziński, 2020. "Political connections and the super-rich in Poland," Working Papers 2020-17, Faculty of Economic Sciences, University of Warsaw.
    2. Trifonov, Dmitri, 2021. "Political connections of Russian corporations: Blessing or curse?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    3. Alexander Chepurenko & Maria Kristalova & Michael Wyrwich, 2019. "Historical and Institutional Determinants of Universities’ Role in Fostering Entrepreneurship," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 13(4), pages 48-59.
    4. Villo, Sofia & Halme, Minna & Ritvala, Tiina, 2020. "Theorizing MNE-NGO conflicts in state-capitalist contexts: Insights from the Greenpeace, Gazprom and the Russian state dispute in the Arctic," Journal of World Business, Elsevier, vol. 55(3).
    5. Finn Tarp & Sam Jones & Felix Schilling, 2021. "Doing business while holding public office: Evidence from Mozambique’s firm registry," DERG working paper series 21-08, University of Copenhagen. Department of Economics. Development Economics Research Group (DERG).

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    More about this item

    Keywords

    alternative institutions; network analysis; Political Connections;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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