Costs and Benefits of Business-Government Relations: Empirical Analysis of Former-Communist Transition Economies

Abstract

This paper examines the costs and benefits of business-government relations in firm behaviors in the empirical context of 25 former-communist transition economies. We find that the firms contributing high taxes and employment are more capable of influencing government policies related to their businesses. While a firm’s competence in influencing government policies in turn decreases bribery to government officials and increases the successful securing of government contracts, the same competence increases a firm’s structural inertia of maintaining existing courses of action by discouraging the firm from starting new production lines and discontinuing obsolete production lines.