Political institutions, lobbying and corruption

Abstract

Although firms use various strategies to try to influence government policy, with lobbying and corruption chiefly among them, and political institutions play an important role in determining this choice, very little research has been devoted to these topics. This paper tries to fill this gap. Using cross-country enterprise-level data, it investigates (a) the effect of a key political institution, namely electoral rules, on the probability that a firm engages in lobbying activities and (b) the impact of lobbying on influence, accounting for corruption and political institutions. The main conclusion is that lobbying is a significantly more effective way of generating political influence than corruption, and that electoral rules are a key mediating political institution. Our baseline estimate is that the probability of influencing government policy is 16% higher for firms that are members of lobbying groups compared to those firms that are not.