Laws for Sale: Evidence from Russia

How does regulatory capture affect growth? We construct measuresof the political power of firms and regional regulatory captureusing microlevel data on the preferential treatment of firmsthrough regional laws and regulations in Russia during the period1992–2000. Using these measures, we find that: (1) politicallypowerful firms perform better on average; (2) a high level ofregulatory capture hurts the performance of firms that haveno political connections and boosts the performance of politicallyconnected firms; (3) capture adversely affects small-businessgrowth and the tax capacity of the state; and (4) there is noevidence that capture affects aggregate growth.

"oligarchy ... throws a close network of dependence relationshipsover all the economic and political institutions of present-daybourgeois society without exception... ." —Vladimir Lenin,"Imperialism: The Highest Stage of Capitalism" (1916)