Connecting to Power: Political Connections, Innovation, and Firm Dynamics
Ufuk Akcigit, Salomé Baslandze, Francesca Lotti
NBER Working Paper,
No. 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,
No. 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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Growth through Heterogeneous Innovations
Ufuk Akcigit, William R. Kerr
Journal of Political Economy,
No. 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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Differences Make a Difference: Diversity in Social Learning and Value Creation
Yiwei Fang, Bill Francis, Iftekhar Hasan
Journal of Corporate Finance,
2018
Abstract
Prior research has demonstrated that CEOs learn privileged information from their social connections. Going beyond the importance of the number of social ties in a CEO's social network, this paper studies the value generated from a diverse social environment. We construct an index of social-network heterogeneity (SNH) that captures the extent to which CEOs are connected to people of different demographic attributes and skill sets. We find that higher CEO SNH leads to greater firm value through the channels of better corporate innovation and diversified M&As. Overall, the evidence suggests that CEOs' exposure to human diversity enhances social learning and creates greater growth opportunities for firms.
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When Arm’s Length is too Far: Relationship Banking over the Credit Cycle
Thorsten Beck, Hans Degryse, Ralph De Haas, Neeltje van Horen
Journal of Financial Economics,
No. 1,
2018
Abstract
We conduct face-to-face interviews with bank CEOs to classify 397 banks across 21 countries as either relationship or transaction lenders. We then use the geographic coordinates of these banks’ branches and of 14,100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle. We find that while relationship lending is not associated with credit constraints during a credit boom, it alleviates such constraints during a downturn. This positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn. Moreover, our evidence suggests that relationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans.
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Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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Relationship Banking and SME Financing: The Case of Wales
Kent Matthews, Hans Degryse, Tianshu Zhao
International Journal of Banking, Accounting and Finance,
No. 1,
2017
Abstract
Regional disparities in credit availability across the UK have been highlighted in a series of studies as a factor affecting both new firm starts and small firm growth prospects. This paper suggests that relationship banking might be an important means of attenuating differences in credit availability. The paper focuses on the value of relationship banking to SMEs in Wales in the period following the global banking crisis. The results show that SMEs that had developed a customer-loan relationship with their banks had a lower probability of experiencing a worsened credit outcome than those that did not. The implications of the findings for regional development and financial provision are discussed.
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07.09.2017 • 32/2017
The German economy: Growing strongly
In the summer of 2017, the upswing in Germany continues. „For this year, we forecast gross domestic product to expand by 1.9%, as it did in 2016, and for 2018 by 2.0%” says Oliver Holtemöller, head of the Department Macroeconomics and IWH vice president.
Oliver Holtemöller
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