Do political connections make businesspeople richer? Evidence from Russia, 2003–2010

Abstract

Extensive literature shows that businesspeople thrive on political connections. Most research, however, does not differentiate between types of political connection, thus effectively assuming that economic return on being connected should not differ systematically between federal and regional, legislative and executive, formal and informal connections. We collect a unique comprehensive dataset on Russia’s richest businesspeople in 2003–2010 and demonstrate that only certain types of connections work, depending on the political context. Our analysis shows that as Russian politics became centralized and the federal executive more powerful during the 2000s, businesspeople with informal connections to the federal executive increased their fortunes much faster compared with everyone else—including those with any other type of connections. Businesspeople’s wealth thus dynamically reflected these important political changes. This suggests a procedure for inferring nominally unobservable changes in the political system from politically connected businesspeople’s fortunes, while also shedding additional light on the institutional origins of informality in Russian politics today.