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PERSISTENCE OF POLITICIANS AND FIRMS' INNOVATION
Author(s) -
BELLETTINI GIORGIO,
BERTI CERONI CARLOTTA,
PRAROLO GIOVANNI
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12015
Subject(s) - persistence (discontinuity) , economic rent , incentive , politics , economics , political instability , economic system , market economy , political science , law , engineering , geotechnical engineering
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. 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. ( JEL D22, D72, O31)