Are Politically Connected Firms More Likely to Export?

Political connection may facilitate firms' exporting activities particularly in developing countries, because politically connected firms may be more likely to receive informational and financial support, allowing them to overcome barriers to export. We test this hypothesis using a unique, firm-level dataset from traditional apparel and textile clusters in the Red River Delta Region in Northern Vietnam. We find that political connection of certain types increases the chance of receiving valuable information or financial support from the government. Moreover, those firms which have access to information from the government have higher chances of being direct exporters. However, firms which receive financial support from the government are not necessarily engaged in exporting activities. Although politically connected firms are more willing to export, they do not necessarily engage in more exporting activities than firms without such connections. These results suggest that the misallocation of information and financial resources to politically connected but insufficiently productive firms leads to a failure in the promotion of exporting activities. In contrast, political connection increases the chance of importing materials and parts, possibly because high productivity is necessary for exporting, but not importing.