Politically Connected Firms: A Novel Channel for the Political Business Cycle in Putin’s Russia

• Main Author: Morkovine, Daniel
• Format: Others
• Published: Scholarship @ Claremont 2017
• Subjects: Crony Capitalism; Political Business Cycle; Putin's Russia; Economics
• Online Access: http://scholarship.claremont.edu/cmc_theses/1485; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=2557&context=cmc_theses

This paper tests whether politically connected firms in Putin’s Russia are a channel for the political business cycle. Given the widespread corruption and crony capitalism that exists in Russia, it is likely that federal and regional politicians may need to buy the electoral support of powerful, connected firms in order to win elections. Using panel data of approximately 60,000 Russian firms comprising an estimated 62 percent of GDP per year from 2003-2011, I find that federally connected firms are significantly more productive in federal election years. If these cycles in firm productivity are caused by electoral favors from politicians, this not only further corrupts Russia’s political landscape, but it also may induce powerful firms to engage in costly political bidding wars for these connections, thus inhibiting their productivity and the overall productivity of the Russian economy.