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The “L” Word: Is lobbying actually a sign of progress in developing countries?

Mohammad Amin's picture

Conventional wisdom holds that bribery is the preferred means of influencing government policy in less developed countries, while lobbying is more common in developed countries. Perhaps due to this perceived compartmentalization of lobbying and bribery, very little is known about the relationship between lobbying and bribery, the extent and effectiveness of lobbying vs. bribery in less developed countries, and how this relationship changes as countries move up the development ladder.

The complexity of the issue makes for a challenging research agenda. Take for example the first point—the relationship between lobbying and bribery. One view is that lobbying is aimed at changing the law in to favor the lobbyists, thus decreasing bribery. However, another view is that lobbying is not done in order to change the rules favorably, thus making bribing unnecessary, but rather to persuade politicians to underinvest in law enforcement, thus making bribing easier. In this view, lobbying and bribery increase in tandem. Which of these two views is correct in a given situation and does the answer vary with the underlying political structure?

A recent study by Campos and Giovannoni (2007) in the journal Public Choice attempts to address some of the issues mentioned above. While there are some data limitations with this study, the results are worth pondering. Using data on 25 transition countries in Eastern Europe and Central Asia collected by the World Bank (Enterprise Surveys, BEEPS), the study finds that:

(1)  There is substantial lobbying by firms—about 24 percent of the firms engaged in lobbying activity, ranging from 6 percent in Azerbaijan to 77 percent in Hungary.

(2)  Lobbying activity increases—and quite sharply—with higher levels of GDP per capita.

(3)  Lobbying and bribing are found to move in opposite directions. That is, lobbying substitutes for bribery.

(4)  Lobbying appears to be much more effective than bribery in influencing policy.

(5)  Political stability, a parliamentary vs. presidential system and various firm characteristics have a strong effect on firms’ decision to engage in lobbying.

These findings suggest that lobbying is not just a rich-country phenomenon. It is already present in at least some of the less developed countries and is slowly replacing bribery as a means of influencing government policies. The pace is likely to increase as the less developed countries continue their onward march towards higher income levels. Let’s hope that development economists start paying greater attention to lobbying—its determinants, effects and harmonization with the broader political objectives of the country.

Comments

Submitted by Hector on
Hi. An interesting post. Especially regarding bribery and lobbying moving in opposite directions. In Honduras, bribery is still considered a more efficient effort than lobbying. An interesting thing to note is that both of these are widely perceived (and accurately so) as interest groups using their economic and political leverage to shape the rules to their advantage. So while I share in the fact that an increase lobbying is correlated with an increase in GDP per capita and a decrease in corruption, I disagree that it indicates progress. Not towards poverty reduction, nor towards creating the right economic incentives, towards narrowing the wealth gap or creating a more modern, accountable State.

Available data from Africa also show the importance of lobbying and more broadly of influence-peddling. Based on data from the Enterprise Surveys, my coauthors Gaiv Tata, Manju Shah and I argued that some African manufacturing enterprises have continued to retain their market leadership in domestic markets by investing in relationships with governments, thereby maintaining high barriers to entry and a reduced degree of competition. This implies that attempts to improve the productivity of the African private sector by focusing only on the removal of trade barriers, improvements in the investment climate, and private sector capacity building will at most be partially successful. In order to escape from the current low-level equilibrium trap, future reforms will need to explicitly consider political economy issues. From this perspective, the role of regional integration as a tool of competition policy will need to be given greater consideration. The full paper is here: http://www.cgdev.org/content/publications/detail/14517

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