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SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Composition and Interests of Russia’s business lobbies:
A test of Olson’s “encompassing organization” hypothesis
HSE, April 2010
18.4.2010 HSE Conference
Bofit Discussion Paper 5/2010, available at www.bof.fi/bofit
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Motivation
Special interest groups (lobbies) seek additional favors from local politicians at the expense of others (Grossman and Helpman 2001)
In reality, however, the externalities caused by lobby group actions differ, and some may even cause positive externalities
On business associations in less than perfectly functioning markets:– Doner and Scheider, 2000– Coates and Heckelman, 2003– Pyle, 2006 and 2009
Why are some lobby groups less benign in their external effects than others?
28.4.2010 HSE Conference
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Olson’s hypothesis
Business lobbies have an interest to increase the welfare of their constituents, but …
Less-encompassing lobby groups with their constituents collectively representing a narrow range of sectors are more apt to seek policies (eg. subsidies, tariffs, tax benefits, and competition-limiting regulations) that impose costs on the rest of the society (Olson, 1982)
Basis for further analysis on collective action
Due to lack of data this intuitive result has never been formally tested !
38.4.2010 HSE Conference
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
We have a formidable dataset to test Olson’s hypothesis
Two surveys across the Russian Federation
Face-to-face survey with managers of 600+ industrial enterprises (spring and summer 2004)
Face-to-face survey with managers of 200 regional business associations (spring and summer 2004)
48.4.2010 HSE Conference
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Surveys on business associations (n=145)
58.4.2010 HSE Conference
Summary statistics on regional associations
Mean Median
Number of sectors represented (14 listed, includes 7 industrial branches, transport, trade, communications, finance, healthcare, education, other)
7.43 8
Full-time employees 16.98 5
Years since founding 8.67 8
Founders – other business associations 0.428
Founders – individual(s), entrepreneur(s) 0.510
Founders – government (federal, regional, municipal) 0.228
Founders – unions 0.021
Founders – individuals formerly in government 0.620
Founders – former CP official 0.076
Members exclusively in single city 0.372
Located in Moscow 0.034
Located in St. Petersburg 0.048
Located in capital city of territorial subject 0.634
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Surveys on firms, n=606
Summary statistics on firms
Members of regional association 0.394
Members of regional, multi-sector association 0.338
Members of regional, sector-specific association 0.079
Full-time employees (2004) 568.6
First registered after 1991 0.427
State or municipal enterprise 0.051
Influence of foreign shareholders (0-4) 0.020
Relative condition of ”material/technical base” (1-4, 2 is Russian average) 1.94
Level of competition in primary output market (1-5) 4.11
Major competitors include firms in other Russian regions (0, 1) 0.611
Major competitors include firms in other countries (0, 1) 0.294
Sell primary output to firms in other Russian regions 0.614
Sell primary output to firms in other countries 0.317
Sell primary output to Russian government (zakaz) 0.234
Sell primary output to firms that are part of same commercial group 0.127
Purchase inputs from firms in other Russian regions 0.642
Purchase inputs from firms in other countries 0.315
Purchase inputs from Russian government 0.072
Purchase inputs from firms that are part of same commercial group 0.114
Located in Moscow 0.036
Located in St Petersburg 0.031
Located in capital city of territorial subject 0.691
Sectoral representation – metallurgy 12.4
Sectoral representation -- machine building and metal working 17.7
Sectoral representation – chemicals 13.4
Sectoral representation -- wood processing and paper 13.0
Sectoral representation -- building materials 13.4
Sectoral representation – textiles 12.9
Sectoral representation -- food processing 14.9
8.4.2010 6HSE Conference
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Setting the scene - survey results on the importance of business associations
Lobbying the local decision-makers is indeed an inportant function of the business associations (Table 3)
If a firm seeks to influence local legislation, it’s likely to do that both via business associations and through direct connections to decision-makers (Table 4)
Firms are more inclined to use business associations in politically more competitive regions (Table 5)
78.4.2010 HSE Conference
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ С УТВЕРЖДЕНИЕМ: ГОСУДАРСТВО ДОЛЖНО СОЗДАВАТЬ ОСОБЫЕ УСЛОВИЯ ДЛЯ РАЗВИТИЯ ПРИОРИТЕТНЫХ НАПРАВЛЕНИЙ ЭКОНОМИКИ (ЛЬГОТНОЕ НАЛОГООБЛОЖЕНИЕ, ПРЕДОСТАВЛЕНИЕ СУБСИДИИ И ПР.)
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ С УТВЕРЖДЕНИЕМ: ОРГАНЫ ВЛАСТИ СУБЪЕКТОВ ФЕДЕРАЦИИ ДОЛЖНЫ СОЗДАВАТЬ ЭКОНОМИЧЕСКИЕ БАРЬЕРЫ ДЛЯ ВВОЗА ТОВАРОВ ИЗ ДРУГИХ РЕГИОНОВ (РЕСПУБЛИК, КРАЕВ, ОБЛАСТЕЙ) И СТРАН С ЦЕЛЬЮ ПОВЫШЕНИЯ ЗАНЯТОСТИ, СОЗДАНИЯ БЛАГОПРИЯТНЫХ УСЛОВИЙ ДЛЯ РАЗВИТИЯ РЕГИОНА?
For firms
1 2 3 4 5 Total Average
Industrial policy 43 22 84 105 346 600 4.15
Import barriers 184 55 165 69 126 599 2.83
Attitudes toward free markets and government intervention: firms
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Additional questions
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ СО СЛЕДУЮЩИМ УТВЕРЖДЕНИЕМ: НАШ РЕГИОН (РЕСПУБЛИКА, КРАЙ, ОБЛАСТЬ, ГОРОД) В ЦЕЛОМ ТОЛЬКО ВЫИГРАЕТ ОТ ВСТУПЛЕНИЯ В ВТО?
В КАКОЙ СТЕПЕНИ ВЫ СОГЛАСНЫ СО СЛЕДУЮЩИМ УТВЕРЖДЕНИЕМ: РОССИЙСКАЯ ЭКОНОМИКА В ЦЕЛОМ ТОЛЬКО ВЫИГРАЕТ ОТ ВСТУПЛЕНИЯ В ВТО
Attitudes toward free markets and government intervention: associations
For regional associations
1 2 3 4 5 Total Average
Industrial policy 4 4 15 32 90 145 4.38
Import barriers 53 16 34 23 19 145 2.58
WTO – good for region 21 22 49 18 11 121 2.80
WTO – good for Russia 24 24 58 23 15 144 2.87
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Testing Olson’s hypothesis
Seek to explain the variation in associations / member’s attitudes by – variables proxing encompassingness (multi-sector / sector-
specific, n. of sectors represented/ founded by other association) – plus a rich set of control variables including
• association / firm specific variables • location, regional economic structure
Standard ordered probit regressions
108.4.2010 HSE Conference
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Are less encompassing associations different?
118.4.2010 HSE Conference
Industrial policy
Import barriers
WTO and region
WTO and country
Number of sectors represented in membership -0.001 -0.070** 0.083** 0.049**
Founders include other business association(s) -0.794** -0.534** 0.327 0.291
Full-time employees (log) 0.036 -0.006 0.196* 0.101
Years since founding (log) -0.061 0.135 -0.339 -0.072
Membership from one city 0.201 0.222 0.420 0.045
Political competition in region 0.112 0.103 -0.057 0.056
Regional controls x x x x
Location controls x x x x
Founder controls x x x x
Number 135 135 113 134
Prob > chi2 0.0000 0.0000 0.0000 0.0000
Adjusted R2 0.0874 0.0791 0.0935 0.0534
Ordered probit by STATA, robust standard errors, adjusted for clustering at regional level
***, **, * significant at 1%, 5%, or 10%
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Do members of less encompassing associations view things differently?
128.4.2010 HSE Conference
Industrial policy
Import barriers
Industrial policy
Import barriers
Member of multi-sector association 0.136 0.125Member of sector-specific association 0.355** 0.400** 0.284 0.501**
Full-time employees (log) -0.095** -0.028 -0.192** -0.117*
Founded in post-Soviet era -0.224** -0.042 -0.484*** -0.322*
State or municipal enterprise 0.521** 0.045 0.706 -0.362
Influence of foreign shareholders -0.123 0.018 -0.296** 0.022
Relative quality of capital equipment 0.061 -0.120** 0.254 0.046
Location controls x x x xSector controls x x x xRegional controls x x x x
Competitor and trade partner controls x x x x
Number of observations 579 579 234 234
Prob > chi2 0.0000 0.0000 0.0000 0.0000
Adjusted R2 0.0336 0.0263 0.0902 0.0615Ordered probit by STATA, robust standard errors, adjusted for clustering at regional level
***, **, * significant at 1%, 5%, or 10%
All firms Members
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Conclusions
Less-encompassing associations view targeted government intervention more favorably
Also the members of the less-encompassing associations are more favorable to government intervention
Somewhat surprisingly, regional variation in political and economic environment does not help to explain the differences in attitudes.
We provide the first direct test confirming Olson’s view that lobby group composition and its interests are related
138.4.2010 HSE Conference
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Thank you!
www.bof.fi/bofit
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