Do Politically Connected Firms Innovate, Contributing to Long-Term Economic Growth?

Francis, David ; Hussain, Sahar ; Schiffbauer, Marc

World Bank, Washington, DC

关键词: INNOVATION;    FIRM PRODUCTIVITY;    POLITICAL NETWORKS;    POLITICAL CONNECTIONS;    CRONYISM;   

DOI  :  10.1596/1813-9450-8502
RP-ID  :  WPS8502

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper presents new evidence thatcronyism reduces long-term economic growth by discouragingfirms' innovation activities. The analysis is based onnovel establishment survey data from The Arab Republic ofEgypt which provides information on establishments'political connections, their innovation activities, andtheir access to policy privileges. The analysis finds thatthe probability that firms invest in products new to thefirm increases from under 1 percent for politicallyconnected firms to over 7 percent for unconnected firms. Theresults are robust across different innovation measures.Despite innovating less, politically connected firms aremore capital intensive, as they face lower marginal cost ofcapital due to the generous policy privileges they receive,including exclusive access to input subsidies, publicprocurement contracts, favorable exchange rates, andfinancing from politically connected banks. These privilegesare largest when compared with their direct competitorsoperating in the same 4-digit sectors. The findings suggestthat connected firms out-rival their competitors by lobbyingfor privileges instead of innovating. In the aggregate,these policy privileges reduce Egypt's long-term growthpotential by diverting resources away from innovation to theinefficient capital accumulation of a few large, connectedfirms. A wide array of supporting evidence suggests thatthis effect is causal and not due to selection.