Tag: European Patent Office

When old technologies succumb to new creative ideas, competition thrives, innovation increases, the economy grows, and consumers benefit. In our study, we try to understand how widespread such political connections are and how they affect firm dynamics, market competition, innovation, and the overall productivity of the economy. We analyzed a newly available data from the Italian Social Security office on the firms and the employment histories of all private-sector workers from 1993-2014. The nature of this data allows us to explore how political connections affect companies and the broader economy. Overall, we found that employing local politicians is a common practice, especially among large and/or old firms. Consistent with what you might expect, we found that the more regulated the industry the more pervasive the political connections in that industry. These benefits are larger the more powerful the politician the firm employs. Not surprisingly, this premium increases with the political rank of a politician. At the more aggregate level, political connections tend to be associated with worse industry dynamics — a lower rate of firms entering the market, less reallocation of resources from less- to more-productive firms, less growth, and lower productivity. What is clear from our study is that effect of political connections go well beyond the private benefits to connected firms.