The Rise of a Network: Spillover of Political Patronage and Cronyism to the Private Sector

In this paper (joint with David Schoenherr), we document that networks that gain access to political power also gain control over the resource allocation in the private sector. Using micro-level data on bank loans, firm financials, and CEOs, and exploiting variation in network links for the same firm across lenders before and after the Korean presidential election in 2007, we find that firms whose CEOs share the same alumni network (Korea University) as the president received more credit at a lower rate from both government and private banks, relative to firms whose CEOs are not from KU, despite higher default rates. While the prior literature treats cronyism in the government and private sectors as independent sources of inefficiencies (i.e., Khwaja and Mian 2005), we show that, in fact, cronyism in both sectors is linked in a way that drastically amplifies allocative distortions.

Speakers:
• Terry S. Moon, Assistant Professor, University of British Columbia (Presenter)
• Ryan Kim, Assistant Professor, School of Advanced International Studies (SAIS), Johns Hopkins University (Discussant)
• Jungmin Lee, Professor, Seoul National University (Moderator)
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This joint webinar series between Seoul National University and University of California San Diego is designed to be a forum for discussion of new research and major policy issues in Korea. We hope that you will join us. This series has received generous support from the Korea Foundation and the National Research Foundation of Korea (NRF-2020S1A3A2A02104190).