《《Persistence of politicians and firms#39; innovation》.pdf

PERSISTENCE OF POLITICIANS AND FIRMS’ INNOVATION GIORGIO BELLETTINI, CARLOTTA BERTI CERONI and GIOVANNI PRAROLO∗ We empirically investigate whether the persistence of politicians in political insti- tutions 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 individ- ual 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 innova- tion. 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) I. INTRODUCTION the persistence of the same persons in the local political institutions, affects private firms’ In many circumstances, the coexistence of propensity to innovate. By concentrating on a long-lived economic and political elites is single country, we avoid concerns emerging blamed for countries’ low rate of technologi- when countries with very different institutional cal innovation and economic growth. Through