Abstract
Business and politicians'interaction is pervasive but has mostly been analyzed with a binary approach, i.e. either a firm is connected to a politician or not. Yet the network dimensions of such connections are ubiquitous. This paper uses use a unique data set for seven economies that documents politically exposed persons and their links to companies, political parties, and other individuals. The data set is used to identify networks of connections, including their scale and composition. The analysis finds that all country networks are integrated having a Big Island. They also tend to be marked by small-world properties of high clustering and short path length. Matching the data to firm-level information, the paper examines the association between being connected and firm-level attributes. The originality of the analysis is to identify how location in a network, including the extent of ties and centrality, is correlated with firm scale and performance. In a binary approach, such network characteristics are omitted and the scale and economic impact of politically connected business may be significantly mis/under-estimated. By comparing the results of the binary approach with the network approach, the paper also assesses the biases that result from ignoring network attributes.
Highlights
The interaction of firms and politicians and the outcomes – notably in terms of rent seeking – that result has been documented across a wide range of political and economic systems.1 State-owned enterprises have been found to be responsive to politicians, family and other network ties to politicians can deliver advantage to private companies
Using a new and unique dataset that identifies Politically Exposed Persons (PEPs) and their links to companies, politicians and political parties, we identify the scale of the phenomenon and the links between individuals, politicians, political parties and different types of firms, as well as the complex configurations of the resulting networks in each of the countries
Drawing on the tools of network analysis, we show that each of these countries is characterised by a giant component or Big Island
Summary
The interaction of firms and politicians and the outcomes – notably in terms of rent seeking – that result has been documented across a wide range of political and economic systems. State-owned enterprises have been found to be responsive to politicians, family and other network ties to politicians can deliver advantage to private companies. The interaction of firms and politicians and the outcomes – notably in terms of rent seeking – that result has been documented across a wide range of political and economic systems.. The flow of transactions may not be one-way, as firms may favour politicians, including by creating employment at opportune moments in the electoral cycle (Bertrand et al, 2004). These multiple modes through which connections are realised is further qualified by differences across countries in political and other institutions. High corruption levels and weak institutions tend to be associated with more politically connected firms (Faccio, 2006), while, not surprisingly, political connections tend to be endemic in autocratic regimes
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