Firms in low-income countries reap immense value from possessing political connections. But a key - and untested - mechanism in much of this work is that political connections enable preferential access to state institutions: politically connected firms receive better access to lenders, penetrate judicial institutions to preferentially enforce contracts, and receive required business permits and licences more quickly. With an RCT in Senegal, Abhit Bhandari aims to answer a series of questions:
- Do firms’ political connections actually improve access to institutions for developing business operations? What types of political connections matter most?
- Can personal (i.e. social) connections substitute or complement political connections?
- How do co-ethnicity, co-religiosity, and gender affect institutional access?
To test the impact of political and social connections on institutional privilege in the private sector, Bhandari will conduct a field experiment in Dakar, the capital and home to the majority of Senegal's private-sector activity. Using a legal sales business created and operated for a former PEDL-funded project, employees will be hired for a randomised audit of the institutions that private-sector firms in Senegal must visit to develop their business operations. Several aspects of the application procedure are randomised including whether applicants signal political connections and/or personal connections, applicants' co-ethnicity and/or co-religiosity to the head of the institution and the customer-facing permit manager, and applicants’ gender. The primary outcomes to be measured will include time until initial processing, number of steps involved in the application process, and the ultimate receipt of the relevant permit, licence, or documentation.
The results of this project will illuminate the ways in which unevenly distributed political and personal influences affect private-sector growth in lower-income countries. This causal evidence of mechanisms can help to inform policy that insulates institutions from rent-seeking forces while simultaneously illuminating strategies for equalising institutional access.
