Laws for Sale: Evidence from Russia

How does regulatory capture affect growth? We construct measures of the political power of firms and regional regulatory capture using microlevel data on the preferential treatment of firms through regional laws and regulations in Russia during the period 1992–2000. Using these measures, we find that: (1) politically powerful firms perform better on average; (2) a high level of regulatory capture hurts the performance of firms that have no political connections and boosts the performance of politically connected firms; (3) capture adversely affects small-business growth and the tax capacity of the state; and (4) there is no evidence that capture affects aggregate growth. “oligarchy ... throws a close network of dependence relationships over all the economic and political institutions of present-day bourgeois society without exception... .” —Vladimir Lenin, “Imperialism: The Highest Stage of Capitalism” (1916)