In the developing world, regulatory institutions can be weak and as a consequence much economic activity takes place outside the formal marketplace. There may be no clear procedures for awarding government contracts. Bribes may change hands and favors get extended, friends and family may be placed first in line. Public and private sector disclosure rules may not exist or may be ignored. Emanuele Colonnelli, a Stanford PhD candidate in economics, a Graduate Student Fellow at SCID, and a Shultz Graduate Fellow in Economic Policy at SIEPR, wants to shed light on this murky world. He is one of a growing number of development economists looking at corruption and transparency and questions like what is the efficiency loss when economic decisions are based on connections, not merit.
With funding from SCID, Colonnelli is principal investigator in a novel research project in Uganda to measure the effects of transparency on business performance, specifically whether more open and visible business practices lead to better financial results. Uganda is fertile ground for this research—it ranked 142nd out of 174 countries in Transparency International’s 2014 Corruption Perception Index. Colonnelli and his colleague Mounu Prem are mainly focusing on construction companies, a sector notorious in many parts of the world for political influence peddling and shady business practices. A key innovation of their work, carried out in collaboration with several government agencies, is to come up with measures of internal and external transparency, and correlate that data with information on business networks and firm financial performance. They are investigating such questions as how contracts are generated, how financial information is disclosed, and the reaction of firms to government audits.
Colonnelli, who grew up in eastern Italy near the Adriatic coast, has long been fascinated by the nexus of politics and economics. “I come from a small town,” he explains. “Where I grew up, and in many other places in Italy, some firms—especially construction firms—tend to do really well when a given politician is in power.” As an undergraduate, he chose economics as his field. “I realized, by studying economics, I could investigate virtually everything, including what the impact of corruption is,” he says. His interest in businesses and entrepreneurs in developing countries was further stoked while working as a research assistant in Malawi in 2010, “That was really a formative experience for me,” he recalls. “Malawi is where I have my best memories.”
Colonnelli holds a BSc in Economics from the University of Siena, an MSc in Economics from Bocconi University in Milan, and spent an academic year at Oxford University. His other dissertation research examines political cycles and corruption in Brazilian municipalities. He is looking at how successful companies are in getting public contracts when they contribute to the campaigns of winning local candidates, then comparing that with firms that back losers, calculating the efficiency losses stemming from political favoritism. Colonnelli’s research on the impacts of corruption and political connections in multiple countries will help to shed light on the design of policies that can help to boost efficiency in developing countries.