Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2024-12-27T20:56:41.541Z Has data issue: false hasContentIssue false
  • English
  • Français

Calling the cavalry: firm-level investment in the face of decentralized expropriation

Published online by Cambridge University Press:  19 February 2020

Israel Marques II Open the ORCID record for Israel Marques II [Opens in a new window] ,
Irina Levina ,
Anton Kazun Open the ORCID record for Anton Kazun [Opens in a new window]  and
Andrei Yakovlev Open the ORCID record for Andrei Yakovlev [Opens in a new window]
Israel Marques II*
Affiliation:
International Center for the Study of Institutions and Development, National Research University Higher School of Economics, Moscow, Russia School of Politics and Governance, National Research University Higher School of Economics, Moscow, Russia
Irina Levina
Affiliation:
International Center for the Study of Institutions and Development, National Research University Higher School of Economics, Moscow, Russia
Anton Kazun
Affiliation:
International Center for the Study of Institutions and Development, National Research University Higher School of Economics, Moscow, Russia
Andrei Yakovlev
Affiliation:
International Center for the Study of Institutions and Development, National Research University Higher School of Economics, Moscow, Russia Institute for Industrial and Market Studies, National Research University Higher School of Economics, Moscow, Russia
*
*Corresponding author. Email: imarques@hse.ru
Get access Rights & Permissions [Opens in a new window]

Abstract

What characteristics of firms give them the confidence to invest in settings rife with expropriation by local officials? Empirically, firms in the developing world often face the threat of expropriation from local agents of the state rather than a centralized autocrat. Because policing local officials is costly, the state cannot easily credibly commit to doing so. This has negative consequences for investment. We argue that one solution is to allow firms to approach the state directly to ask for intervention. Not all firms are equally able to successfully get the attention of the state, however, so this mechanism only works for some. We develop an argument about the firm-level characteristics – large-scale employment, political connections, foreign ownership, and business association membership – that should make the central state more attentive to calls for help. Because firm with these characteristics are more likely to secure intervention against predatory bureaucrats, the latter are less likely to try to expropriate them. These firms' investment decisions should be less sensitive to local expropriation than other firms. We test this argument using data on cases of decentralized expropriation across Russia's regions and firm-level data from a cross-regional, large scale survey of Russian firms.

Keywords

Decentralized expropriationfirm-level investmentinstitutional qualityprincipal-agent problemsproperty rights
Type
Research Article
Information
Journal of Institutional Economics , Volume 16 , Issue 4 , August 2020 , pp. 503 - 518
Copyright
Copyright © The Author(s) 2020. Published by Millennium Economics Ltd and Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The research leading to these results has received funding from the Basic Research Program at the National Research University Higher School of Economics (Moscow) and the Russian Academic Excellence Project ‘5-100’. The authors are grateful to Gregory Kisunko for his collaboration in our previous projects, which created important preconditions for this paper. We are also grateful to participants of the first Ariel Conference on the Political Economy of Public Policy in September 2017 and two anonymous reviewers for insightful comments. All supplementary appendices can be found at: http://israelmarques.com/working-papers/.

References

Alfaro, L., Kalemli-Ozcan, S. and Volosovych, V. (2008), ‘Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation’, The Review of Economics and Statistics, 90(2): 347–368.10.1162/rest.90.2.347CrossRefGoogle Scholar
Baumol, W. J. (1990), ‘Entrepreneurship: Productive, Unproductive, and Destructive’, Journal of Political Economy, 98(5): 893–921.10.1086/261712CrossRefGoogle Scholar
Beazer, Q. H. (2012), ‘Bureaucratic Discretion, Business Investment, and Uncertainty’, The Journal of Politics, 74(3): 637–652.10.1017/S0022381612000205CrossRefGoogle Scholar
Brown, J. D., Earle, J. S. and Telegdy, A. (2006), ‘The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine’, Journal of Political Economy, 114(1): 61–99.10.1086/499547CrossRefGoogle Scholar
Diaby, A. and Sylwester, K. (2014), ‘Bureaucratic Competition and Public Corruption: Evidence from Transition Countries’, European Journal of Political Economy, 35(September): 75–87.10.1016/j.ejpoleco.2014.04.002CrossRefGoogle Scholar
Djankov, S. and Murrell, P. (2002), ‘Enterprise Restructuring in Transition: A Quantitative Survey’, Journal of Economic Literature, 40(3): 739–792. Retrieved from JSTOR.CrossRefGoogle Scholar
Duvanova, D. (2013), Building Business in Post-Communist Russia, Eastern Europe, and Eurasia: Collective Goods, Selective Incentives, and Predatory States, New York: Cambridge University Press.Google Scholar
Faccio, M., Masulis, R. W. and McConnell, J. J. (2006), ‘Political Connections and Corporate Bailouts’, The Journal of Finance, 61(6): 2597–2635.CrossRefGoogle Scholar
Faria, A. and Mauro, P. (2009), ‘Institutions and the External Capital Structure of Countries’, Journal of International Money and Finance, 28(3): 367–391.CrossRefGoogle Scholar
Firestone, T. (2010), ‘Armed Injustice: Abuse of the Law and Complex Crime in Post-Soviet Russia’, Denver Journal of International Law & Policy, 38(4): 555–580.Google Scholar
Frye, T. (2002), ‘Capture or Exchange? Business Lobbying in Russia’, Europe-Asia Studies, 54(7): 1017–1036.10.1080/0966813022000017113CrossRefGoogle Scholar
Frye, T. (2017), Property Rights and Property Wrongs: How Power, Institutions, and Norms Shape Economic Conflict in Russia. Cambridge, UK; New York, NY: Cambridge University Press.10.1017/9781316661727CrossRefGoogle Scholar
Frye, T. and Iwasaki, I. (2011), ‘Government Directors and Business–State Relations in Russia’, European Journal of Political Economy, 27(4): 642–658.CrossRefGoogle Scholar
Frye, T., Reuter, O. J. and Szakonyi, D. (2014), ‘Political Machines at Work Voter Mobilization and Electoral Subversion in the Workplace’, World Politics, 66(2): 195–228.CrossRefGoogle Scholar
Gandhi, J. (2008), Political Institutions Under Dictatorship, Cambridge: Cambridge University Press.10.1017/CBO9780511510090CrossRefGoogle Scholar
Gehlbach, S. (2008), Representation Through Taxation: Revenue, Politics, and Development in Postcommunist States, New York: Cambridge University Press.CrossRefGoogle Scholar
Gehlbach, S. and Keefer, P. (2011), ‘Investment Without Democracy: Ruling-Party Institutionalization and Credible Commitment in Autocracies’, Journal of Comparative Economics, 39(2): 123–139.10.1016/j.jce.2011.04.002CrossRefGoogle Scholar
Gehlbach, S. and Keefer, P. (2012), ‘Private Investment and the Institutionalization of Collective Action in Autocracies: Ruling Parties and Legislatures’, The Journal of Politics, 74(2): 621–635.CrossRefGoogle Scholar
Gerber, T. P. and Mendelson, S. E. (2008), ‘Public Experiences of Police Violence and Corruption in Contemporary Russia: A Case of Predatory Policing?’, Law & Society Review, 42(1): 1–44.CrossRefGoogle Scholar
Haber, S., Razo, A. and Maurer, N. (2003), The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876–1929, Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Hanousek, J. and Kochanova, A. (2016), ‘Bribery Environments and Firm Performance: Evidence from CEE Countries’, European Journal of Political Economy, 43(June): 14–28.10.1016/j.ejpoleco.2016.02.002CrossRefGoogle Scholar
Huber, J. D. and Shipan, C. R. (2002), Deliberate Discretion? The Institutional Foundations of Bureaucratic Autonomy, Cambridge: Cambridge University Press.10.1017/CBO9780511804915CrossRefGoogle Scholar
Jia, R., Kudamatsu, M. and Seim, D. (2015), ‘Political Selection in China: The Complementary Roles of Connections and Performance’, Journal of the European Economic Association, 13(4): 631–668.10.1111/jeea.12124CrossRefGoogle Scholar
Kazun, A. (2015), ‘Violent Corporate Raiding in Russia: Preconditions and Protective Factors’, Demokratizatsiya: The Journal of Post-Soviet Democratization, 23(4): 459–484.Google Scholar
Landry, P. F., Lü, X. and Duan, H. (2018), ‘Does Performance Matter? Evaluating Political Selection Along the Chinese Administrative Ladder’, Comparative Political Studies, 51(8): 1074–1105.10.1177/0010414017730078CrossRefGoogle Scholar
Magaloni, B. (2006), Voting for Autocracy: Hegemonic Party Survival and its Demise in Mexico, New York: Cambridge University Press.CrossRefGoogle Scholar
Mares, I. and Zhu, B. (2015), ‘The Production of Electoral Intimidation: Economic and Political Incentives’, Comparative Politics, 48(1): 23–41. Retrieved from JSTOR.CrossRefGoogle Scholar
Markus, S. (2012), ‘Secure Property as a Bottom-Up Process: Firms, Stakeholders, and Predators in Weak States’, World Politics, 64(2): 242–277.CrossRefGoogle Scholar
Markus, S. (2015), Property, Predation, and Protection: Piranha Capitalism in Russia and Ukraine. Retrieved from http://ebooks.cambridge.org/ref/id/CBO9781316104743.CrossRefGoogle Scholar
Mattingly, D. C. (2016), ‘Elite Capture: How Decentralization and Informal Institutions Weaken Property Rights in China’, World Politics, 68(3): 383–412.CrossRefGoogle Scholar
McCubbins, M. D. and Schwartz, T. (1984), ‘Congressional Oversight Overlooked: Police Patrols versus Fire Alarms’, American Journal of Political Science, 28(1): 165–179.10.2307/2110792CrossRefGoogle Scholar
Mccubbins, M. D., Noll, R. G. and Weingast, B. R. (1987), ‘Administrative Procedures as Instruments of Political Control’, The Journal of Law, Economics, and Organization, 3(2): 243–277.Google Scholar
Mironov, M. and Zhuravskaya, E. (2016), ‘Corruption in Procurement and the Political Cycle in Tunneling: Evidence from Financial Transactions Data’, American Economic Journal: Economic Policy, 8(2): 287–321.Google Scholar
North, D. C. (1990), Institutions, Institutional Change, and Economic Performance, Cambridge: Cambridge University Press.CrossRefGoogle Scholar
North, D. C. and Weingast, B. R. (1989), ‘Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England’, The Journal of Economic History, 49(4): 803–832.CrossRefGoogle Scholar
North, D. C., Wallis, J. J. and Weingast, B. R. (2009), Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge; New York: Cambridge University Press.CrossRefGoogle Scholar
Okada, K. (2013), ‘The Interaction Effects of Financial Openness and Institutions on International Capital Flows’, Journal of Macroeconomics, 35(March): 131–143.CrossRefGoogle Scholar
Reuter, O. J. and Gandhi, J. (2011), ‘Economic Performance and Elite Defection from Hegemonic Parties’, British Journal of Political Science, 41(1): 83–110.CrossRefGoogle Scholar
Robertson, G. B. (2010), The Politics of Protest in Hybrid Regimes: Managing Dissent in Post-Communist Russia, New York: Cambridge University Press.10.1017/CBO9780511921209CrossRefGoogle Scholar
Rochlitz, M. (2014), ‘Corporate Raiding and the Role of the State in Russia’, Post-Soviet Affairs, 30(2–3): 89–114.10.1080/1060586X.2013.856573CrossRefGoogle Scholar
Sidorkin, O. and Vorobyev, D. (2018), ‘Political Cycles and Corruption in Russian Regions’, European Journal of Political Economy, 52(March): 55–74.CrossRefGoogle Scholar
Slinko, I., Yakovlev, E. and Zhuravskaya, E. (2005), ‘Laws for Sale: Evidence from Russia’, American Law and Economics Review, 7(1): 284–318.CrossRefGoogle Scholar
Szakonyi, D. (2018), ‘Businesspeople in Elected Office: Identifying Private Benefits from Firm-Level Returns’, American Political Science Review, 112(2): 322–338.CrossRefGoogle Scholar
Weingast, B. R. (1997), ‘The Political Foundations of Democracy and the Rule of Law’, American Political Science Review, 91(2): 245–263.10.2307/2952354CrossRefGoogle Scholar
Williamson, O. E. (1979), ‘Transaction-Cost Economics: The Governance of Contractual Relations’, The Journal of Law & Economics, 22(2): 233–261.CrossRefGoogle Scholar
Yakovlev, A. and Govorun, A. (2011), Industrial Associations as a Channel of Business-Government Interactions in an Imperfect Institutional Environment: The Russian Case. IWH – Halle Institute for Economic Research Series ‘IWH Discussion Papers,’ (16). http://www.iwh-halle.de/fileadmin/user_upload/publications/iwh_discussion_papers/16-11.pdf.Google Scholar
Yakovlev, E. and Zhuravskaya, E. (2009), ‘State Capture From Yeltsin to Putin’, in Kornai, J., Matyas, L. and Roland, G. (eds.), Corruption, Development, and Institutional Design, New York: Palgrave Macmillan, pp. 24–36.10.1057/9780230242173_2CrossRefGoogle Scholar
Yakovlev, A., Sobolev, A. and Kazun, A. (2014), ‘Means of Production versus Means of Coercion: Can Russian Business Limit the Violence of A Predatory State?’, Post-Soviet Affairs, 30(2–3): 171–194.10.1080/1060586X.2013.859434CrossRefGoogle Scholar