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This paper examines whether political connections ease financial constraints faced by firms. Using firm-level data from six Central and Eastern European economies, the paper shows that politically connected firms: (i) have high levels of leverage, (ii) have low levels of profitability, (iii) are less capitalized, (iv) have low marginal productivity of capital, and (v) do not invest more than unconnected firms. Next, the paper shows that connected firms borrow more because they have easier access to credit and that political connections lead to a misallocation of capital. The results are consistent with the idea that political connections distort capital allocation and may have welfare costs.

AbstractFarmers throughout the developing world face multiple sources of uninsured risk to agricultural production and household assets. In this paper, we present results from an experimental demand‐elicitation exercise in rural Bangladesh to shed light on smallholder farmers' interest in formal insurance products. We propose a suite of insurance and savings products, and we randomly vary the price of one insurance option (area‐yield insurance) and the presence of one of the savings options (group savings). Consistent with economic theory, farmers buy more of the insurance products that cover the risks they primarily face. However, because farmers are subject to a variety of risks, they do not focus on only one type of insurance; instead, they evenly split their endowment between life and disability insurance and agricultural insurance. Demand for area‐yield insurance falls with price; we also observe important cross‐price elasticities with other insurance products. The presence of group savings does not alter demand for insurance, though group savings is found to be a particularly popular risk management tool, especially when decisions are made in groups.

Front Cover -- Contents -- Foreword -- Acknowledgments -- About the Authors -- Abbreviations -- Overview -- Introduction -- The innovation imperative for developing East Asia -- The state of innovation in developing East Asia -- Heterogeneity of innovation capabilities within countries, sectors, and firms -- Why diffusion matters -- What inhibits innovation? -- Spurring innovation in developing East Asia: Directions for policy -- Final remarks -- Notes -- References -- 1 The State of Innovation in Developing East Asia -- Introduction -- Defining innovation -- The innovation imperative for developing East Asia -- Innovation performance in developing East Asia -- Road map for this report -- Notes -- References -- 2 Conceptual Framework and Stylized Facts -- Introduction -- Key concepts -- Importance of innovation and diffusion of technology in addressing the region's challenges -- Core elements for designing policies that accelerate technology adoption and diffusion -- Conclusions -- Notes -- References -- 3 Technology Adoption and Diffusion: A Firm-Level Perspective -- Introduction -- Is East Asia converging with, or diverging from, the technological frontier? Why diffusion matters -- Heterogeneity in the pattern and diffusion of innovation across space, sectors, and firms -- What inhibits innovation? -- Conclusions -- Annex 3A The Firm-level Adoption of Technologies survey -- Annex 3B Supplementary tables -- 1396927554 -- Notes -- References -- 4 Skills and Finance for Innovation -- Introduction -- Skills for innovation -- Finance for innovation -- Conclusions -- Notes -- References -- 5 Innovation Policies and Institutions in the Region: An Assessment -- Introduction -- Are policies coherent with the objective of supporting diffusion as well as invention? -- Agencies to support innovation.