Political connections, privileged access to credit, and welfare costs

a column by Maurizio Bussolo, Francesca de Nicola, Ugo Panizza and Richard Varghese for VOX: CEPR’s Policy Portal

Firms can use political connections to gain an unfair advantage in resource allocation, such as easier access to credit.

This column examines around 460,000 firms from six central and eastern European economies and shows that political connections ease credit constraints, distort capital allocation, and may have large welfare costs.

Connected firms do not always borrow to invest and, when they do invest, they are likely to misallocate capital.

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Labels:
political_connections, rent-seeking, cronyism, corruption, competition, credit,

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