Political connection, trade protection and multinational corporations: Firm-level evidence of patron...

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" Political connection, trade protection and multinational corporations: Firm-level evidence of patronage in Indonesia "
Denni Puspa Purbasari A. M. Mobarak

Document Type	:	Latin Dissertation
Language of Document	:	English
Record Number	:	53911
Doc. No	:	TL23865
Call number	:	‭3212109‬
Main Entry	:	Denni Puspa Purbasari
Title & Author	:	Political connection, trade protection and multinational corporations: Firm-level evidence of patronage in Indonesia\ Denni Puspa Purbasari
College	:	University of Colorado at Boulder
Date	:	2006
Degree	:	Ph.D.
student score	:	2006
Page No	:	189
Abstract	:	The assertion that corruption is not favorable for business is not new. In our research we concentrate on the opposite question: can business benefit from corrupt environment? We answer this question using firm-level data from Indonesia and use firm political connection as the pivotal point in our research. In developing countries---like Indonesia---where corruption is prevalent, unofficial mechanisms such as nepotism and bribery are of first-order importance. In Chapter 2 we study the impact of firm political connectedness on the likelihood that firm receives import licenses. We compute a measure of import licensing protection that is specific to each firm because protection in corrupt countries really occurs on the basis of personal relationships between politicians and firm owners. This dissertation finds strong evidence that politically connected firms are more likely to be awarded licenses to import raw materials. While Chapter 2 illustrates how political connection explains government favoritism in granting trade protection, Chapter 3 illustrates how "other firms" perceive or value the firms that have political connection. Specifically, in Chapter 3 we investigate the effect of firm political connectedness on the likelihood that MNCs choose the firm as a partner in joint venture. Unlike all previous research that have emphasized on MNC's characteristics, we focus on the local partner's characteristics that drive MNC decision. This dissertation finds strong evidence that in joint venture schemes, MNCs are more likely to choose politically connected partners. This result is robust across different MNC assets, sales and country of origin. While the effect of firm political connection is undeniable, there is no clear evidence that firm fundamentals such as productivity and profitability affect trade protection and MNC choice. Our findings speak to existing debates on corruption, globalization and corporate responsibility and business ethics because even though connection-based decisions are efficient for private agents, such decisions are arguably costly for the whole society. This dissertation fills a gap in the earlier literature on corruption. Not only do we study the mechanisms of corruption, but we also shed light on the reason for corruption's persistence: firms actually create demand for corruption.
Subject	:	Social sciences; Indonesia; Multinational corporations; Patronage; Political connection; Trade protection; Economics; Business costs; Imports; Licensing; Trade policy; Studies; Corporate responsibility; Business ethics; 0505:Business costs; 0501:Economics
Added Entry	:	A. M. Mobarak
Added Entry	:	University of Colorado at Boulder