Political persistence and economic growth

- In this growth model political connections are used by firms to cut red tape costs.
- Entry can be blocked if red tape is high and the incumbent politician keeps office.
- Negative (no) effect of political persistence on growth where red tape is high (low).
- We measure political persistence as the longest tenure among main political entities.
- We provide evidence supporting the model's predictions based on panel estimation.

Using data for a panel of 62 partly to fully democratic countries in the period 1984-2008, we provide evidence that political persistence (measured as the longest tenure in office of main political entities) is negatively associated with growth, after controlling for country and time fixed effects, and that this association is stronger in countries with low bureaucratic quality, where the cost of red tape is high. This evidence can be rationalized by means of a growth model with quality improvements where political connections with politicians can be exploited by low-quality producers to mitigate red tape costs, defend their monopoly position and prevent entry of higher-quality competitors. The model implies a negative relationship between persistence in office of politicians and economic growth in high red-tape countries, while no association is expected where red tape costs are low.