The Variation in Firm Lobbying by Political Regime: Can it Explain Trade and Currency Policy Differences?

Exploring if/how lobbying patterns differ by political regime, this paper uses data from the World Bank’s Enterprise Surveys with about 29,000 firms across 83 country/years to test the hypothesis that this political activity should be greater in democracies. Considering a variety of democracy indicators and different lobbying measures, it finds strong support for this expected positive relationship. It then employs these data to consider the trade and currency policy preferences of firms within the special interest channel, comparing democracies with non-democracies. These results show a greater percentage of exporting firms, a lesser percentage of import-competing firms, and a greater percentage of non-tradable firms within the democratic special interest channel, helping to build a lobbying-based explanation for why democracies tend to have more open trade policies and more flexible exchange rate regimes.