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Title:Persistence of politicians and firms' innovation PDF Logo
Authors:Bellettini, Giorgio
Berti Ceroni, Carlotta
Prarolo, Giovanni
Issue Date:2011
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3350
Abstract:We empirically investigate whether the persistence of politicians in political institutions affects the innovation activity of firms. We use 12,000 firm-level observations from three waves of the Italian Observatory over Small and Medium Enterprises, and introduce a measure of political persistence defined as the average length of individual political careers in political institutions of Italian municipalities. Standard OLS shows no raw correlation between political persistence and firms' innovation activity. However, once the causal effect is isolated by means of instrumental variables, using death of politicians as an exogenous source of variation of political persistence, we find a robust negative relation between political persistence and the probability of process innovation. This finding is consistent with the view that political stability may hinder firms' incentive to innovate to maintain their competitiveness, as long as they can extract rents from long-term connections with politicians.
Subjects:innovation
politicians
tenure
instrumental variable
JEL:D22
D72
O31
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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