Periodic Reporting for period 2 - POLBUSNETWORKS (Political and Business Networks)
Reporting period: 2018-11-01 to 2020-04-30
I focus on two broad questions.
(1) What are the determinants and mechanisms of political favor networks?
(2) What is the impact of business networks on firm and industry performance?
The answers can help us understand economic and political differences between firms, industries and countries. In exploring these issues I develop new theories which I then test with new observational and experimental data. Beyond documenting and explaining facts, I also hope to obtain policy implications on protecting political freedoms and improving industry performance in developing countries.
In the context of business networks, in a set of studies we have documented the impacts of business networks on firm and industry performance. In one study we showed that business associations substantially improve the performance of participating firms. In another study we showed that firm networks facilitate the diffusion of information about importing. These results highlight the benefit of policies that improve firm-to-firm interactions. Turning to industry performance, in a third study we documented that access to finance had large positive direct effects on firms, but similarly large negative indirect effects on their competitors due to business-stealing. This finding implies that accounting for indirect network effects is essential to measure societal outcomes, and should influence our thinking on evaluating industrial policies.
In the context of business networks, we are investigating the impact of suppliers on firm and industry performance. In one study we introduce randomly selected supplier and client firms to an online ecommerce platform, and evaluate the impact of the platform on firm performance and firm-to-firm trade. In a second study we use comprehensive data on firm-to-firm transactions in Hungary to evaluate the impact of supply chain misallocation on industry and aggregate performance. The results are expected to help quantify the economic importance of supply chains, and identify policies that improve firm-to-firm transactions.