Political Determinants of Economic Backwardness: An Empirical Investigation

• In Event: Poster Session: Comparative Politics I

Abstract

Economic backwardness, i.e., slow rates of technological progress in certain states, constitutes one of the central topics in political economy of development. Yet, researchers have not reached a shared consensus regarding causes of technological stagnation. We argue that firms can use two strategies to gain edge in competition: innovating themselves or blocking innovations developed by competitors. At the firm level, state-owned firms tend to invest in blocking rather than innovate because marginal returns to blocking, especially via political connections, exceed those of investments in R&D. At the country level, democratic institutions incentivize firms’ investment in innovations because politicians in democracies are more limited in their abilities to block technologies. A firm’s decision to innovate is, therefore, largely mediated by political institutions: while democratic settings incentivize firms to invest in innovations, authoritarian settings incentivize firms to block innovations. We employ Bayesian multi-level model that allows us to test both firm-level and country-level hypotheses within a unified framework and thereby provide one of the most comprehensive assessments of political determinants of economic backwardness. The empirical results corroborate our hypotheses.

Authors

• Evgeny Sedashov, SUNY at Binghamton

• Dina Rosenberg, National Research University - Higher School of Economics