Connecting to Power: Political Connections, Innovation, and Firm Dynamics
Ufuk Akcigit, Salomé Baslandze, Francesca Lotti
NBER Working Paper,
Nr. 25136,
2018
Abstract
How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, we build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model generates a number of theoretical testable predictions and highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity. We test the predictions of our model using a brand-new dataset on Italian firms and their workers, spanning the period from 1993 to 2014, where we merge: (i) firm-level balance sheet data; (ii) social security data on the universe of workers; (iii) patent data from the European Patent Office; (iv) the national registry of local politicians; and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with a larger share of politically connected firms feature worse firm dynamics. We identify a leadership paradox: when compared to their competitors, market leaders are much more likely to be politically connected, but much less likely to innovate. In addition, political connections relate to a higher rate of survival, as well as growth in employment and revenue, but not in productivity – a result that we also confirm using a regression discontinuity design.
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Living with Lower Productivity Growth: Impact on Exports
Filippo di Mauro, Bernardo Mottironi, Gianmarco Ottaviano, Alessandro Zona-Mattioli
IWH-CompNet Discussion Papers,
Nr. 1,
2018
Abstract
This paper investigates the impact of sustained lower productivity growth on exports, by looking at the role of the productivity distribution and allocative efficiency as drivers of export performance. It follows and goes beyond the work of Barba Navaretti et al. (2017), analysing the effects of productivity on exports depending on the dynamics of allocative efficiency. Low productivity growth is a well-documented stylised fact in Western countries – and possibly a reality likely to persist for some time. What could be the impact of persistent sluggish growth of productivity on exports? To shed light on this question, this paper examines the relationship between the productivity distribution of firms and sectoral export performance. The structure of firms within countries or even sectors matters tremendously for the nexus between productivity and exports at the macroeconomic level, as the theoretical and empirical literature documents. For instance, whether too few firms at the top (lack of innovation) or too many firms at the bottom (weak market selection) drives slow average productivity at the macro level has very different implications and therefore demands different policy responses.
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Does it Payoff to Research Economics? A Tale of Citation, Knowledge and Economic Growth in Transition Countries
Dejan Kovač, Boris Podobnik, Nikol Scrbec
Physica A: Statistical Mechanics and its Applications,
September
2018
Abstract
There are many economic theories that promote human capital as a key driver of a country’s economic growth, but it is challenging to test this theory empirically on a country level and causally interpret the coefficients due to several identification problems. We tried to answer this particular question by using a quasi-natural experiment that happened quarter century ago – the fall of communist block in Eastern Europe. We use a shock to a particular scientific field – economics, to test whether the future investment into that particular field resulted in increased welfare and economic growth. The economics paradigm that was governing all of the communist block ceased to exist. Human capital depreciated over night and all communist countries had to transit from planned economy to a market economy. In the following years countries had to adapt to market economy through additional investment in human capital and research. We find that countries which lack both of the two fourth mentioned components had 25 years later a relatively lower economic growth and wealth. Unlike economics, other fields such as physics and medicine did not go through the same process so we use them as a placebo effect for our study. We find that the relative ratio of citations between economics and physics in post-communist countries is increasing only 15 years after the “paradigm” shock which gives a suggestive evidence that timing of investment into particular scientific field matters the most.
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Growth through Heterogeneous Innovations
Ufuk Akcigit, William R. Kerr
Journal of Political Economy,
Nr. 4,
2018
Abstract
We build a tractable growth model in which multiproduct incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines. External and internal innovations generate heterogeneous innovation qualities, and firm size affects innovation incentives. We analyze how different types of innovation contribute to economic growth and the role of the firm size distribution. Our model aligns with many observed empirical regularities, and we quantify our framework with Census Bureau and patent data for US firms. Internal innovation scales moderately faster with firm size than external innovation.
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Channeling the Iron Ore Super-cycle: The Role of Regional Bank Branch Networks in Emerging Markets
Helge Littke
IWH Discussion Papers,
Nr. 11,
2018
Abstract
The role of the financial system to absorb and to intermediate commodity boom induced windfall gains efficiently presents one of the most pressing issues for developing economies. Using an exogenous increase in iron ore prices in March 2005, I analyse the role of regional bank branch networks in Brazil in reallocating capital from affected to non-affected regions. For the period from March 2004 to March 2006, I find that branches directly exposed to this shock by their geographical location experience an increase in deposit growth in the post-shock period relative to non-affected branches. Given that these deposits are not reinvested locally, I further show that branches located in the non-affected region increase lending growth depending on their indirect exposure to the booming regions via their branch network. Even tough, these results provide evidence against a Dutch Disease type crowding out of the non-iron ore sector, further evidence suggests that this capital reallocation is far from being optimal.
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What Type of Finance Matters for Growth? Bayesian Model Averaging Evidence
Iftekhar Hasan, Roman Horvath, Jan Mares
World Bank Economic Review,
Nr. 2,
2018
Abstract
We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator—the efficiency of financial intermediaries—is robustly related to long-term growth.
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On the Empirics of Reserve Requirements and Economic Growth
Jesús Crespo Cuaresma, Gregor von Schweinitz, Katharina Wendt
Abstract
Reserve requirements, as a tool of macroprudential policy, have been increasingly employed since the outbreak of the great financial crisis. We conduct an analysis of the effect of reserve requirements in tranquil and crisis times on credit and GDP growth making use of Bayesian model averaging methods. In terms of credit growth, we can show that initial negative effects of higher reserve requirements (which are often reported in the literature) tend to be short-lived and turn positive in the longer run. In terms of GDP per capita growth, we find on average a negative but not robust effect of regulation in tranquil times, which is only partly offset by a positive but also not robust effect in crisis times.
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Early-Stage Business Formation: An Analysis of Applications for Employer Identification Numbers
Kimberly Bayard, Emin Dinlersoz, Timothy Dunne, John Haltiwanger, Javier Miranda, John Stevens
NBER Working Paper,
Nr. 24364,
2018
Abstract
This paper reports on the development and analysis of a newly constructed dataset on the early stages of business formation. The data are based on applications for Employer Identification Numbers (EINs) submitted in the United States, known as IRS Form SS-4 filings. The goal of the research is to develop high-frequency indicators of business formation at the national, state, and local levels. The analysis indicates that EIN applications provide forward-looking and very timely information on business formation. The signal of business formation provided by counts of applications is improved by using the characteristics of the applications to model the likelihood that applicants become employer businesses. The results also suggest that EIN applications are related to economic activity at the local level. For example, application activity is higher in counties that experienced higher employment growth since the end of the Great Recession, and application counts grew more rapidly in counties engaged in shale oil and gas extraction. Finally, the paper provides a description of new public-use dataset, the “Business Formation Statistics (BFS),” that contains new data series on business applications and formation. The initial release of the BFS shows that the number of business applications in the 3rd quarter of 2017 that have relatively high likelihood of becoming job creators is still far below pre-Great Recession levels.
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