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Politicians and Creative Destruction

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  • Salome Baslandze

    (EIEF - Einaudi Institute for Economics a)

Abstract

Creative destruction and reallocation of resources from less to more productive firms are important drivers of productivity growth (Bartelsman and Doms (2000), Foster et al. (2001), Foster et al. (2008), Lentz and Mortensen (2008), Hsieh and Klenow (2009), etc). In this project, we study the role of frictions that are obstacles to such creative destruction and real-location in Italy. More specifically, inefficiencies of financial intermediation as well as existence of politically connected firms can affect selection of firms into market as well as lead to unequal access to further growth opportunities. This might have adverse effects on aggregate growth due to slower market churning and less competition in the market. Our goal is to understand quantitative importance of different channels through which these frictions shape firm dynamics and productivity growth in Italy. Starting point of our analysis is an empirical investigation of micro-level data from Italy. First, we match social security data on universe of workers from Italy’s Social Security Office (INPS) with firm-level balance sheet data from Centrale dei Bilanci to get a matched employer-employee dataset for the universe of workers in Italy in 1985-2014. To identify political connections at the firm level, we combine this matched employer-employee dataset with administrative data on local politicians from the Ministry of the Interior (RLP). To study firms’ innovation activities we combine the above firm-level data with patents and citations information from PATSTAT. We utilize this comprehensive micro-level dataset to document a set of motivating reduced-form evidence. In particular, among others, we analyze: 1) the characteristics of firms that have political connections in terms of a range of real outcomes, like investment, innovation behavior, productivity growth, etc. 2) firm dynamics in industries/locations where political connections are more prevalent, 3) the link between firms’ connections and ease of access to financing.

Suggested Citation

  • Salome Baslandze, 2017. "Politicians and Creative Destruction," 2017 Meeting Papers 1319, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1319
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    References listed on IDEAS

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    1. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    2. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
    3. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372, National Bureau of Economic Research, Inc.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    5. 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.
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