Losing Your Dictator: Firms During Political Transition

66 Pages Posted: 8 Oct 2015 Last revised: 4 Jul 2019

See all articles by Felipe González

Felipe González

Pontifical Catholic University of Chile - Institute of Economics

Mounu Prem

Universidad del Rosario

Date Written: July 2, 2019

Abstract

We use new firm-level data from Chile to document resource misallocation in favor of politically connected firms during the transition from dictatorship to democracy. We find that firms with links to the Pinochet regime (1973–1990) were relatively unproductive and benefited from resource misallocation during the dictatorship, and those distortions persisted into democracy. We show that, after learning that the dictatorship was going to end, firms in the dictator’s network increased their productive capacity, experienced higher profits, and obtained more loans from the state-owned bank. We test for different explanations and provide suggestive evidence consistent with connected firms aiming to shield their market position for the transition to democracy.

Keywords: transition, distortions, firms, networks

JEL Classification: D2, G2, G3, M2, N86

Suggested Citation

González, Felipe and Prem, Mounu, Losing Your Dictator: Firms During Political Transition (July 2, 2019). Available at SSRN: https://ssrn.com/abstract=2670869 or http://dx.doi.org/10.2139/ssrn.2670869

Felipe González

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

Mounu Prem (Contact Author)

Universidad del Rosario ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

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