Are oligarchs productive? Theory and evidence

Abstract

This paper develops a partial equilibrium model to account for stylized facts about the behavior of oligarchs, politically and economically strong conglomerates, in transition and developing countries. The model predicts that oligarchs are more likely than other owners to invest in productivity enhancing projects and to vertically integrate firms to capture the gains from possible synergies and, thus, oligarchs can be productive. Using a unique data set comprising almost 2000 Ukrainian open joint stock companies, the paper tests empirical implications of the model. In contrast to commonly held views, econometric results suggest that, after controlling for endogeneity of ownership, oligarchs can improve the performance of the firms they own relative to other firms. Journal of Comparative Economics 36 (1) (2008) 17-42.