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Public interest and group interests in the Polish legislation

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The paper presents the results of the research on the implementation of group interests in the legislative process in Poland, made on a sample of 1365 laws passed in 1990-2011. Two mutually related questions are analyzed: the state of the Polish legislation and the impact of various interest groups on the shape of law. The results of the research do not give a direct insight in the process of the legislative lobbying; they only document the fact of the existence of certain privileges in the law, favouring some interest groups at the expense of the whole society. The results of the analysis indicate that the legislative process is significantly influenced by such factors as current economic situation in the country, the state of public finance, time distance to the next parliamentary election, and the political position of the person that performs the function of the minister of finance.
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DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
What Determines State Capture in Poland?1
Stanisław Alwasiak2
Monika Lewandowska-Kalina3
Lech Kalina4
Oskar Kowalewski5
Michał Możdżeń6
Krzysztof Rybiński7
Prim ary su bmissio n: 05.12.12 | Final a ccepta nce: 15.05.13
Abstract
Purpose: This study examines the determinants of ex-ante state capture in Poland.
Methodology: In order to establish the determinants of ex-ante state capture alogistic regression is estimated.
Findings: The study shows that in Poland t he majority of legal acts were passed with the aim to satisfy the
interest of particular groups. Furthermore, the regression analysis shows that the likelihood of state capture
increases during the period of higher economic growth and local elections. The likeli hood of state capture,
however, declines during presidential elections. The results we attribute to different interests of politica l parties
in the period of local and presidential elections. Finally, we nd that t he state capture increased over the years
in Poland. Additionally, we show that the EU accession did not prevent state capture in Poland. In contrast, the
nancial crisis of 2007 resulted in awa ke-up effect and the likelihood of state capture declined in Poland.
Research limitations: In the study we employ proxies for state capture, yet we assume that corruption is awide
spread phenomenon in Poland. However, due to its nature corruption is very dif cult to assess and measure.
Originality: The study uses aunique dataset on ex-ante state capture that was identi ed in the legal acts that
have been passed in the period 1990–2011 in Poland.
Keywords: law, corruption, state capture, public interest, transition country, Poland
JEL: H11, H30, H50, K42, P31, P37
1 The nancial support for this project from the Bank Zachodni WBK SA is gratefully acknowledged.
2 Cracow University of Economics
Correspondence address: Cracow University of Economics, Daszynskiego 22/14 St., 31-534 Cracow, e-mail: s.alwasiak@gmail.com.
3 Warsaw School of Economics, World Economy Research Institute
Correspondence address: Warsaw School of Economics, World Economy Research Institute, Niepodległości 162 St., 02-554 Warsaw,
e-mail: monikalewandowskakalina1@gmail.com.
4 Warsaw School of Economics, World Economy Research Institute
Correspondence address: Warsaw School of Economics, World Economy Research Institute, Niepodległości 162 St., 02-554 Warsaw,
e-mail: lechkalina@gmail.com.
5 Kozminski University
Correspondence address: Kozminski University, Jagiellonska 59 St., 03-301 Warsaw, e-mail: okowale@kozminski.edu.pl.
6 Cracow University of Economics
Correspondence address: Cracow University of Economics, Rakowicka 27 St., 31-510 Cracow, e-mail: michal.mozdzen@uek.krakow.pl.
7 Vistula University
Correspondence address: Vistula University, Stoklosy 3 St., 02-787 Warsaw, e-mail: k.rybinski@vistula.edu.pl.
|„Management and Business Administration. Central Europe” Vol. 21, No. 4(123): p. 86–109, ISSN 2084–3356, Copyright by Kozminski University
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| Introduction
In Poland in 2002 afamous lm producer Lew Rywin approached Adam Michnik, founder of
largest media conglomerate Agora. In exchange for abribe of 17.5 million USD, Rywin offered
achange in adraft law aimed at limiting the print media’s in uence on radio and television,
which would have been in Michnik’s favour as the original draft have prevented Agora from
taking over aTV station. Michnik, however, secretly recorded the conversation and started
investigations to establish the identity of the group in power, which was behind this offer. In
2003, the Polish parliament created aspecial committee to conduct an investigation into the
circumstances of the affair, yet the group in power was never revealed. Few months later, how-
ever, aseparate penal prosecution resulted in Rywin being sentenced to two years in prison.
Nevertheless only few years later asimilar case came to light, which was this time related to
gambling industry.
Those cases show that in Poland corruption is still very widespread despite that the political and
economic transition took place over twenty years ago. Moreover, Hellmannn et al. (2000) docu-
ments that corruption increased in recent years in most of the Central and Eastern European
(CEE) countries as well the Commonwealth of Independent States. Corruption in those countries,
however, can take various forms. Hellmann et al. (2000) describes two examples to distinguish
the two main forms of corruptions in transition countries. First is described by owner of abusi-
ness, who is visited by bureaucrats demanding abribe to overlook violations or simply to prevent
additional visits. Second, an oligarch buys off politicians to shape the regulations to his own
advantage as in the example presented above.
While, anumber of papers investigated the rst type of corruption (de Soto, 1989; Shleifer and
Vishny, 1994; 1999) little is known about the second type of corruption, where powerful groups
have the capacity to capture the state and, by doing so, to extract potentially substantial rents.
In this study, we assume that the second type of corruption occurs less frequently than the
rst type in transition countries, but we think it may results in higher social and economic
costs in the long run. Indeed, Kowalewski and Rybinski (2011) expect that the higher economic
growth in Poland may signi cantly decline in the future years because of increased role of
state, which is often the result of state capture by political and private interest groups. There-
fore, in our opinion, understanding the second type of corruption and its determinants should
be of great interest. Henceforth, in this paper we try to establish the determinants of the state
capture in Poland.
We do this by creating aunique database that includes all the legal acts that have been passed in
Poland in the years 1990–2011. In the database each of the legal acts is classi ed whether it satis-
es the interest of the public welfare or the incumbents. In classifying the legal acts we identify
the ex-ante state capture were incumbents were able to create or change alaw in their interests
prior it was passed to the parliament. Goetz and Zubek (2007), Zubek (2008) and Alwasiak et
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al. (2012) document that in Poland most legal acts are created or shaped in the interest of the
incumbents before they reach the parliament phase. After the legal act has been passed to the
parliament as new legislative project the modi cations to it are minor and not signi cant. We
assume, henceforth, that in Poland ex-ante state capture is widespread, which is also re ected
by the presented cases in the beginning. Moreover, in the study we try to establish whether the
incumbents capture the reform for their own narrow interests (regulatory capture), or politicians
abuse regulatory powers for own purposes (regulatory opportunism).
Our data shows that the majority of new legal acts were passed in the interest of different interest
groups in the period 1990–2011 in Poland. Using logistic regression we nd that the likelihood of
ex-ante state capture increases during aperiod of higher economic growth. Moreover, we show
that legal acts in favor of incumbents are more likely to be passed in the period of the elections
to the local governments in Poland. We assume that during this period political parties attempt
to satisfy the interest of particular groups in order to win the elections. However, we do not nd
direct evidence of regulatory opportunism during the period of local elections. In contrast, we
nd that during the period of presidential elections the ex-ante state capture declines in Poland.
We attribute it to the fact that in Poland the president should be neutral as he presents acounter-
weight to the parliament. As aresult during presidential elections parties are more likely to be
immune to ex-ante state capture as they try to present their candidate as neutral and resistant to
pressure from different interest groups.
In line with Martimort (1999) life-cycle theory of regulatory agencies we nd that the ex-ante
state capture increased since the political transformation toward democracy began in Poland in
1990s. Moreover, we nd that accession to the EU did not result in the decline of ex-ante state
capture in Poland. Indeed, we nd that after the accession the regulatory capture, in the inter-
est of narrow private groups, increased. While, we nd that the global nancial crisis of 2007
resulted in awake-up effect in Poland and ex-ante state capture declined, but at the same time
the likelihood of regulatory capture increased.
Our paper contributes to the literature in several ways. First, using aunique database and
approach our results con rm the existing research of ex-ante state capture in Poland. Second, we
document that state capture is accompanied either by regulatory capture or regulatory opportun-
ism. Third, we present for the rst time some of the determinates of state capture in a developing
country. In our opinion understanding the determinants of state capture is important as it may
help to create instruments to mitigate it in the future.
The rest of the paper is structured as follows. Section Literature Review discusses shortly the litera-
ture on state capture, in particular in transition countries. In Institutional Setting we describe the
contextual setting, considering the development of the state in Poland. In section Data, we present
the data, while in Methodology and results we describe the econometric strategy and the empirical
results. The nal section draws the conclusions.
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|Literature Review
The idea that powerful organizations with private interests may capture the government in order
to foster their private goals is certainly not arecent one, but the concept of regulatory capture
has been introduced in modern economic analysis for the rst time by Stigler (1971). The basic
hypothesis of Stigler is that an industry may use the coercive public power of the state to estab-
lish and enforce rules in order to obtain private bene ts. However, the term state capture was
introduced later by Hellman and Kaufmann (2001), where it refers to the actions of individuals,
groups, or rms both in the public and private sectors to in uence making of laws, regulations,
decrees, and other government policies to their own advantage as aresult of the illicit and non-
transparent provision of private bene ts to public of cials.
Additionally, Hellman, Jones and Kaufmann (2000) empirically investigate the dynamics of the
state capture on the basis of 4,000 firms in 22 transition countries. The authors find that in
transition countries captor rms are more likely to be new entrants to the market. The authors
attribute their results to the fact that new entrants adopted astrategy of state capture, where they
used political forces with the aim to create zones of relative security and advantage for them-
selves at the expense of all other rms. Moreover, the authors also suggest that once acountry
has fallen into the trap of acapture economy, foreign direct investment can magnify the problem.
Indeed, Slinko et al. (2005), for example, using ameasure of state capture in the Russian regions
based on Russian legislation in 1992–2000 show that politically powerful rms bene t greatly
from their political in uence compared to rms without political in uence. His results shows
that within politically powerful rms’ sales and employment grew faster and they invested more
and received more pro ts, and besides, their performance picked up with the growth of capture.
| Institutional Setting
In Poland, the so-called ‘Wilczek law’ on business activity, named after industry minister
Mieczyslaw Wilczek and passed in December 1988, was the backbone of economic freedom in
early 1990s. Then, Poland was still acommunist country with its rst semi-democratic elec-
tions scheduled for June 1989, so the economic freedom preceded political freedom. Wilczek
law stated that every citizen was free to launch business providing that he ful lled conditions
stated in the law. Although the term ‘shock therapy’ refers to Mazowiecki government economic
reforms in the 1990s, the real shock was the right of the Polish people to do business from 1989.
Dallago (1997) identi ed four types of the entrepreneurs in transition economies: elite, domes-
tic, returning migrants and foreign entrepreneurs. The elite entrepreneurs are the old political
party members, including managers of state-owned enterprises. Dallago (1997) asserts that most
of the elite entrepreneurs were competitive in the redistribution process but not in production.
Therefore, he classi es them as unproductive or rent-seeking entrepreneurs. The importance of
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elite entrepreneurs differs amongst transition countries with signi cantly higher levels found in
Russia and lower levels in Hungary. Although one would expect that the domestic entrepreneurs,
returning migrants or foreign migrants would make up an in uential portion of all entrepre-
neurs, they are only asmall share of new entrepreneurs in transition economies. The entrepre-
neurs in transition countries are likely to consume and utilise economic surpluses to maintain
their lifestyle rather than re-invest these funds into their business as in developed countries
(Scase, 2000). As aresult, entrepreneurs from transition countries are short-term oriented and
capital assets are not accumulated (Roberts and Tholen, 1998). Therefore, these economies are
characterised by ahigh level of unproductive activities because most entrepreneurial activities
are focused on short-term rent seeking and often are economically destructive (Dallago, 1997).
The structure and characteristics of entrepreneurs in transition countries explain to alarge
extent those countries’ subsequent development. In the rst year of transformation, the domes-
tic business was developing and bene ted from regulations and emerging nancial infrastruc-
ture. The new entrepreneurs, who were often former communist apparatchiks, created the new
business elite with strong political connections. Often this connection allowed them to transfer
state-owned assets at low costs to their new enterprises. This transfer was an important part
of the entrepreneur spirit of many former party members, who had avast knowledge about the
economy and awell-developed network at many levels inside the newly created state. This net-
work led to increased corruption, which was often encouraged by politicians at the heart of
power, such as the political party patronage, especially at the public administration and the
state-owned companies (Jasiecki, 2007). The transfer of state-owned assets plagued many former
socialist countries, especially Russia, and created agroup of oligarchs that resurfaced after the
transition (Rutland, 1999).
In 1995, the transition countries, with the exception of Romania, witnessed an increase in new
legislation when they had to adopt their national institutions to the acquis communittaire. Poland
was the most eager legislator, and the EU accession effect led to more than twice the number of
new laws and decrees. One reason for this increase was the ability for political forces to enforce
new laws by stating that they were justi ed due to the EU accession requirements. Neverthe-
less, today the analysis of existing laws shows that those regulations either were not required or
are much stricter than those in most EU member states. Alarge number of the new regulations
that were passed were either motivated or in uenced by strong business groups, which sought
to increase their power or to reduce further competition in the free market. As aresult, the
government trend has been to overregulate and interfere with entrepreneurs, thereby reducing
expansion and growth in the private business sector. This overregulation also led to increased
corruption and anegative bureaucratic attitude toward private entrepreneurs (Smallbone and
Welt er, 2001).
Consequently, the basic interaction between bureaucrats and entrepreneurs in Poland and
some CEE countries moved from the invisible hand model to the grabbing hand model. Under
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the invisible hand model, the government is well organised, generally incorrupt and relatively
benevolent. According to Sachs (1994), most CEE transition countries adopted this model when
they began reforms in 1989. The changes that began in 1995, however, marked ashift toward the
grabbing hand model, in which the government is interventionist but not organised due to the
large number of independent bureaucrats pursuing their own agendas, including taking bribes
(Schleifer and Vishny, 1996).
As an example, one law not required by the EU but proposed by business groups was the intro-
duction of the license for real estate brokers in Poland in 1997. Since that time, anyone who
wants to open areal estate agency must pass astate exam and provide aproof of professional
experience in the real estate sector. As aresult of this new law, government of cials gained con-
trol over the real estate sector, and existing agencies were able to signi cantly reduce access to
the fast growing market. The introduction of the new law was only feasible because the state and
its bureaucrats and the existing entrepreneurs had mutual interest, increasing their power. Of -
cial arguments for the new law stated that it would protect customers from fraudulent behaviour
by real estate agencies, but in reality consumer choice and market competition were reduced.
Passing such new laws that favoured particular groups was possible because informal networks
of friends and family contacts were established either prior to or during the rst years of trans-
formation. This network often ignored rules and laws because they were not prosecuted or pros-
ecution ended in alengthy and ineffective trial. At the same time, decision-making processes
in political groups tended to be secretive, and of cial meetings were often less important than
events occurring before or after them. According to Jasiecki (2007), the existing legislative pro-
cess in Poland, the legacy of communist dictatorship and the society’s anti-institutional political
culture, did not change much over time.
The changes observed in Poland, which began with the EU accessions, are in agreement with the
observation of Rajan and Zingales (2003). The latter observed that in many countries powerful
elites oppose widespread access to markets, which is feasible when they have the political sup-
port to erect direct impediments, such as mandatory permits to open businesses. According to
Rajan and Zingales (2003), the powerful elites may not even need to campaign actively against
market-friendly infrastructure because the state may simply be uninterested in the welfare of
the commoner. Indeed, failed health care reforms or social system reforms in Poland show that
the government is not interested in the welfare of the people and tries only to realise short term
goals, which would secure them either asecond term or favours from powerful groups. As shown
by the handling of the Greek crisis by EU top politicians, this short-termism is also well estab-
lished in the developed EU states and has been duplicated in new member states as well, espe-
cially in Poland.
Before 1999, the existing pension system in Poland was ineffective and very expensive (Guard-
iancich, 2004). The goal of pension reform was to reduce the replacement rate to alevel consistent
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with the rapidly aging Polish population. Both health care and pension reforms started in 1998,
and the new law provided atransition period so that state institutions could prepare for compe-
tition with the private institutions that should emerge as aresult of the reforms. However, this
transition period was used by different business actors and by civil servants who could lose their
lucrative contracts, bene ts or their jobs, working to dismantle the reforms. As aresult, the new
private health care was never introduced, and the reform lead only to the creation of an inef-
fective but very powerful state-owned insurance agency, whereas in 2011 the private pension
system that began in 1999 was almost liquidated by the government despite harsh criticism from
many leading economists in the press. Furthermore, the Polish government appears to be seri-
ously considering the Hungarian scenario of nationalising the assets of the private pension sys-
tem. Although the bureaucrats in transition countries often adopt the helping rhetoric (Schleifer,
1996), in reality they are rarely guided by auni ed public policy stance. Moreover, they refrain
from implementing necessary economic reforms (Frye and Schleifer, 1997) unless adeep crisis,
such as that in many Asian countries after 1997, forces them to do so.
|Data
In our study we try to establish the determinants of the ex-ante state capture in a post-transition
country. In other words we try to establish what determines that interest groups are able to shape
the design of regulations in their favour before they come into effect in Poland. In order to do so
we construct aunique database that include all the legal acts, which have been passed by the Pol-
ish parliament in the years 1990–2011. In this period 3.644 legal acts were passed by the parlia-
ment. We have decided, however, to exclude ve categories of legal acts from the analysis. First, we
excluded from the analysis regulations that change the institutional infrastructure on central and
local level in Poland. Second, we exclude legal acts that determine the living of the individuals as
for example civil law, criminal law or administrative law. Those laws are of interest to individuals
but not incumbents. Third, we exclude legal acts, which were the implementation of EU regula-
tions in Poland. Finally, we exclude technical acts like an introduction of another legal act or an
uniform act of existing laws. As aconsequence our sample was reduced to 1.363 legal acts, which
represented 37% all the legal acts that were passed in Poland in the years 1990–2011.
Each of the legal acts in the sample was analyzed, whether it is in the interest of the society
or only aparticular interest groups. We assume that if the legal acts represents the interests of
agroup then in uences was exerted by incumbents of the rule-making processes in Poland. The
interest groups may have initiated the legislation process at one of the ministries or changed its
design during the public consultation period, yet before it was sent as adraft to the parliament.
Such aparticipation by incumbents has the clear advantage that rules can be respected after-
wards and no efforts have to be wasted in trying to circumvent compliance. In order to classify
whether an legal act is in the interest of the society or an particular interests group we used
Rawls (1971) de nition of justice. Using Rawls’ de nition we de ne legal acts to be in the interest
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of the society, when they are to the bene t of the least advantaged in the society. As we are aware
that the de nition is subjective each of the public nance acts was additionally scrutinized if it
ful lls two conditions. First, whether public transfers are in the best interests of the least advan-
taged. According to this de nitions public transfers for example as additional or higher pension
schemes for army members are not justi ed as this group is not the least advantaged in the soci-
ety. However, we agree that public transfers to middle or higher income group may be justi ed,
but only if they lead to higher economic growth in the long run. In our opinion, in such cases,
the least advantaged group in the society will bene t, yet in the future. Assuming that the legal
acts ful ll the rst condition we check the second condition by examining whether the new legal
act could have been better designed in order to redistribute public funds. In other words whether
the public transfers are in the best interests of the least advantaged or if they are indirectly
bene ting the interests groups because of its design. If the public transfers are ef cient and well
intended the second condition is ful lled. Consequently, in this case our rst dependent vari-
able (captured) takes the value 0 if the two conditions are meet and 1 otherwise. Moreover, we
use asecond dependent variable (caputres) where we scale the interests of the legal acts from -3
(strongly in the interests of the society) to 3 (strongly in the interest of interest groups).
According to Alesina (2000) various interest groups, factions pressure groups ght over the allo-
cation of common pool of resources in the case of surpluses. Consequently, we assume that ex
ante state capture is more likely during aperiod of economic growth, low level of de cit or public
debt. We control for the macroeconomic environment in Poland using economic growth (GDP
growth) and in addition we control for the level of countries development using log of GDP per
capita. We assume that as the country develops economically it will be less prone to ex-ante state
capture. Moreover, we control for the current situation of public nance using two variables. The
variable De cit is the government budget balance as apercentage of GDP, while the variable Debt
is the log of total government debt to GDP.
Interests of agroup may in uence the decision making process in order to increase their ben-
e ts in form of additional public spending or by limiting the business access. In the rst case
we assume that the aim of additional public spending is to satisfy the interest groups, who are
important for politicians for example in order to be reelected. Therefore, it re ects the abuse
of regulatory powers by politicians for own propose (regulatory opportunism). We control for
regulatory opportunism using the variable Finance, which measures whether a new legal act
increased or decreased public spending. The variable can take avalue from -3 (increased spend-
ing by several billions Polish zloty) to 3 (decreased spending by several billions Polish zloty).
In the second case we assume that interest groups as oligarchs use politicians to capture the
reform for their own narrow interests (regulatory capture). In most cases we assume that this
form of capture is related to private business and following Hellman et al. (2000) the aim of the
new law is to restrict competition in the market to extract additional rents. Henceforth, we con-
trol for regulatory capture using the variable Business, which measures whether a new legal act
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increased or decreased competition in the market. The variable can take avalue from -3 (opens
fully amarket to competition) to 3 (close amarket to competition).
In Poland for the legislative process to get started, it is necessary to introduce abill to the Sejm
(lower house of the parliament). Based on the Polish constitution only four quali ed subjects
enjoy the right of legislative initiative and each of them can be subject to pressure to incumbents
in order to present anew bill to the parliament, which is in their own interests. Henceforth, in
the regressions we control for the legislative initiative using dummies for each of the subjects.
The variable Ini. Government takes the value 1 if the government proposed the bill and 0 other-
wise. The variable Ini. President takes the value 1 if the president proposed the bill and 0 oth-
erwise. The variable Ini. Lower House takes the value 1 if the Sejm (deputies’ bills may be intro-
duced by aSejm committee or agroup of at least 15 deputies) proposed the bill and 0 otherwise.
The variable Ini. Upper House takes the value 1 if the Senat (aresolution of the entire chamber is
necessary) proposed the bill and 0 otherwise. Finally, in special situation a legal act can be intro-
duced in afast track, where the legislation procedure in the parliament is signi cantly shortened
in the parliament. We control for the situation using adummy variable Ini. Urgent that takes the
value 1 if the bill was passed in the urgent procedure or 0 otherwise.
According to Rogoff (1990) governments at all levels frequently undertake aconsumption binge
prior to elections. In order to be visible politicians introduce tax cuts or increase public transfers
often in favor of interest groups. Consequently, during election periods government spending
is distorted towards highly visible items. We control for the election periods introducing three
dummies. Namely, we employ variables for the year of elections of parliamentary deputies (Elect.
Parliamentary), local governments (Elect. Local) and the president (Elect. Presidential). Addition-
ally, we use variables calculated as the interactions between these election variables and vari-
ables encoding the state capture aims i.e. increase spending or business restrictions.
Table 1 reports the summary statistics and correlations of all the variables employed in the
empirical speci cations. Table 1 Panel Ashows the descriptive statistics for the dependent vari-
ables and the main control variables. The variable Captured and Captures averages 0.318 and
-0.409. Consequently, the data con rms that ex-ante state capture exists in Poland, but the sec-
ond variable indicates that state capture scale is lower than may be assumed.
In the years 1990–2011 the new legal acts are often in the interest of politicians as they were
more likely to increase public spending as the mean value for Finance is 0.261. In contrast, we
nd that regulatory opportunism is present to lesser extend as the average value for Business is
-0.121. It means that in the same period the new legal acts on average increased the economic
freedom in Poland.
In the analyzed period the average economic growth was 3.425% in Poland, while the budget
de cit on average 4.397%. Table 1 Panel B shows that the two ex-ante state capture variables are
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highly correlated and statistical signi cant. Moreover, the variables for state capture, increased
public spending and market restrictions are positively and signi cantly correlated with eco-
nomic growth. On the other hand, those variables are negatively correlated with the level of
budget de cit and public debt.
Table 1 | Descriptive statistics and correlations
Caputred Captures Finance Business Growth Debt De cit GDP
Panel A: Descriptive Statistics
Mean 0.318 -0.409 0.261 -0.121 3.426 3.892 -4.397 9.322
St d. Dev. 0.4 66 1.6 00 1.242 1.318 3. 616 0. 243 1.8 40 0.381
Min. 0 -3-3-3-11.63.605-7.58.633
Max. 13337.0874.5553.19.933
Obs. 1363 1363 136 3 1363 1363 1363 1363 1363
Panel B: Correlations (N= 1363)
Captured 1
Captures 0.9024*** 1
Finance 0.3903*** 0.4639*** 1
Business 0.6151*** 0.6786*** 0.2786*** 1
Growth 0.1885*** 0.2383*** 0.2675*** 0.2699*** 1
Debt -0.0475 -0.0847*** -0.1326*** -0.1838*** -0.5034*** 1
De cit -0.0162 -0.0639** -0.1020*** -0.1237*** -0.2986*** 0.2847*** 1
GDP 0.0224 0.0801*** 0.0935*** 0.0324 0.2922*** -0.3660*** -0.4779*** 1
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
| Methodology and results
There are several dimensions by which to study ex-ante state capture. We opt for avery
straightforward one and use apanel model relating state capture to the abovementioned num-
ber of variables and interaction variables. As our primary dependent variable stated is abinary
variable and we therefore employ the random effects probit model. The second dependent
variable states is adiscrete continuous variable and its range is constrained. Henceforth, we
decided to use aTobit model, which is left and right censored at -3 and 3. In both cases we use
the following speci cation:
Ci,t = i,t + F i,t + B i,t + X i,t + I i,t + Ei,t + i,t (1)
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
where Ci,t is one of the two variables that indicate ex ante state capture in legal act iat year t, Fi,t
controls for public spending (saving), Bi,t shows business restrictions (openness), Xi,t is avec-
tor of macroeconomic variables, Ii,t is adummy variable for legislative initiative, Ei,t is adummy
variable for elections. We control for country dependent variation in state capture over time
using variables re ecting aspects of macro-economic policy of the country.
State capture
In Table 2 we show the results for the pooled probit regression. We regress the dependent vari-
able rstly against macroeconomic variables and then add the set of other control variables.
In all the speci cations the coef cient for economic growth is positive and signi cant at 1%
level. Adding control variables hardly changes the coef cient for economic growth. The result
is in accordance with the hypothesis that positive economic situation in acountry encourages
ex-ante state capture. We nd that none of the dummy variables controlling for the legislative
initiative is signi cant. Consequently, there is no indication that anyperson or group respon-
sible for the legislative initiative is especially prone to ex-ante state capture in Poland. The
results, however, show that during the election periods incumbents may in uence the legisla-
tion process. Interestingly we nd that ex-ante state capture is more likely to take place during
the periods preceding local elections. In contrast, in the years the presidential elections the
likelihood of ex-ante state capture declines signi cantly. One explanation for our results is that
parties represented in parliament try to be visible as they are competing for votes during the
local elections. In Poland the local elections are very important for the political parties for two
reasons. First, the control of the local governments guarantees the political parties asigni cant
number of positions in municipal administration and companies. Second, astrong representa-
tion in the local governments guarantees avery strong support during the parliamentary elec-
tions. Consequently, political parties may be inclined to satisfy the interests of various groups
in order to win their votes during the local election period, which may explain our results. In
contrast, we nd that during the presidential elections periods an ex-ante state capture is less
likely. In Poland the president provides acounter balance to the parliament and henceforth
needs to be an independent person in public view, who can also go against the interest of his
party when needed. Henceforth, we assume that political parties are opposed to any pressure
from various interests groups during the presidential election periods in order to uphold the
view that its candidate is independent.
In Table 4 we present the results for Tobit regression, which are in line with our previous nd-
ings. The coef cient for economic growth is again positive and signi cant in all the speci ca-
tions. Moreover, the results con rm that ex-ante state capture is more likely during the local
elections as the coef cient is again positive and highly signi cant. Similarly, we observe again
during presidential election period the ex-ant state capture is less likely to be present.
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Table 2 | Pooled Probit results for ex-ante state capture
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Growth 0.17*** 0.17*** 0.17*** 0.16*** 0.16*** 0.17*** 0.16*** 0.32** 0.18***
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.16) (0.03)
Debt 0.43 0.42 0.43 0.42 0.45 0.44 0.42 1.12 0.56*
(0.29) (0.30) (0.29) (0.30) (0.30) (0.30) (0.30) (0.77) (0.32)
De cit 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.09 0.00
(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.09) (0.04)
GDP -0.02 -0.03 -0.02 -0.03 -0.01 -0.03 -0.01 0.15 -0.03
(0.18) (0.18) (0.18) (0.18) (0.18) (0.19) (0.18) (0.35) (0.19)
Ini. Government -0.12
(0.12)
Ini. President 0.32
(0.67)
Ini. Lo wer House 0.20
(0.12)
Ini. Upper House -0.60
(0.43)
Ini. Urgent -0.04
(0.23)
Elect. P arliamentar y -0.04
(0.15)
Elect. Local 0.92*
(0.51)
Elect. President -0.41**
(0.18)
Constant -2.85 -2.60 -2.84 -2.83 -2.98 -2.81 -2.86 -8.29 -3.32
(2.22) (2.24) (2.22) (2.22) (2.22) (2.24) (2.22) (5.78) (2.41)
N 1363 1363 1363 1363 1363 1363 1363 1363 1363
2 48.63*** 49.38*** 48.87*** 51.20*** 50.23*** 48.62*** 48.73*** 4.16*** 33.40***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
In opposition to the previous results, however, we nd that the parliament is more prone to
the pressure of ex-ante state capture as the coef cient for parliamentary legislative initiative is
positive and signi cant, yet only at 10% level. The results are in line with our expectation as
the parliament is the most likely place to put pressure in order to enforce alaw in the interest
of aparticular group. In contrast, we nd that the coef cient for the initiative of upper house
is negative and signi cant, yet again only at 10% level. We assume that for interest groups it is
very dif cult to use the upper house of the parliament for its interest as in order to start alegal
initiative you need the votes of all the upper house members, which are originating from differ-
ent political parties. In opposition, in the lower house anew legal act can be proposed by only
15 members out of the 460 parliamentarians. Henceforth, it is easier for the various interest
groups to initiate anew law in their interest through the lower house, what has indeed been
observed in the past (Alwasiak et al., 2012).
Regulatory opportunism
In Table 4 we present the results for the pooled probit regression for ex-ante state capture, where
we additionally control for government spending (saving). We assume that ex-ante state cap-
ture may be often be accompanied by increased government spending as the aim of the interest
groups was to increase public transfers for their welfare. An example for the interest groups
could be military or miners representatives, which through ex-ante state capture increase their
social bene ts. Consequently, in those cases politicians abuse regulatory powers in order to
please particular groups and increase their visibility, henceforth for their own purposes (regula-
tory opportunism).
In line with the previous results we nd that the coef cient for economic growth is positive
and highly signi cant. Moreover, we nd that ex-ante state capture is often accompanied by
regulatory opportunism as the coef cient for government spending is positive and signi -
cant at 1% level in all the speci cations. Consequently, the results con rm that state capture
and regulatory opportunism are strongly correlated in Poland. Moreover, the coef cient for
government debt is now positive but only signi cant at 10% level. Consequently, the results
show that increasing government debt does not have anegative effect on ex-ante state capture,
which may also explain scal problems in various Central and Southern European countries
during the recent crisis. In line with the previous results we nd that ex-ante state capture is
more likely to occur during the local election periods. However, we nd that in this period
the ex-ante state capture is not likely to be related to increased spending. One explanation
for the results is that political parties are afraid of any criticism during election campaign.
Therefore, we assume that political parties are likely to put forward new legal acts in the
interest of various interest groups during local elections, but only if they are not accompanied
by increased public spending what may be used against them during political campaigns.
Finally, we nd again the ex-ante state capture is less likely to occur during the presidential
election period.
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Table 3 | Pooled Tobit results for ex-ante state capture
(1) (2) (3) (4) (5) (6) (7) (8) (9)
GDP Growth 0.13*** 0.13*** 0.13*** 0.13*** 0.13*** 0.13*** 0.13*** 0.14*** 0.13***
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
Gov. Debt 0.34 0.32 0.33 0.32 0.35 0.34 0.35 0.49** 0.41*
(0.23) (0.23) (0.23) (0.23) (0.23) (0.23) (0.23) (0.23) (0.23)
Gov. De cit 0.01 0.01 0.01 0.00 0.00 0.01 -0.00 0.03 -0.00
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
GDP per capita 0.14 0.12 0.14 0.13 0.15 0.14 0.12 0.22 0.15
(0.14) (0.14) (0.14) (0.14) (0.14) (0.15) (0.15) (0.15) (0.14)
Ini. Government -0.13
(0.10)
Ini. President 0.25
(0.55)
Ini. Lo wer House 0.17*
(0.09)
Ini. Upper House -0.5 2*
(0.29)
Ini. Urgent -0.00
(0.18)
Elect. Parliamentary 0.11
(0.12)
Elect. Local 0.37***
(0.11)
Elect. President -0.27**
(0.12)
Constant -3.44** -3.15* -3.44** -3.40* -3.57** -3.43* -3.34* -4.77*** -3.77**
(1.75) (1.76) (1.75) (1.75) (1.75) (1.76) (1.75) (1.78) (1.75)
(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04)
Obs. 1363 1363 1363 1363 1363 1363 1363 1363 1363
Left censored obs. 68 68 68 68 68 68 68 68 68
Right censored obs. 67 67 67 67 67 67 67 67 67
2 87.86*** 89.70*** 88.07*** 91.05*** 91.31*** 87.87*** 88.80*** 100.38** * 93.29***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
Table 4 | Pooled Probit results for ex-ante state capture and government spending (saving)
(1) (2) (3) (4) (5) (6) (7)
Finance 0.84*** 0.82*** 0.91*** 0.84*** 0.83*** 0.84*** 0.86***
(0.07) (0.07) (0.09) (0.07) (0.07) (0.07) (0.08)
GDP Growth 0.13*** 0.14*** 0.13*** 0.13*** 0.13*** 0.13*** 0.13***
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Gov. Debt 0.54* 0.66** 0.63* 0.64** 0.63** 0.53* 0.53*
(0.32) (0.32) (0.32) (0.32) (0.32) (0.32) (0.32)
Gov. De cit 0.01 0.03 0.03 -0.00 -0.00 0.01 0.01
(0.04) (0.05) (0.05) (0.04) (0.04) (0.04) (0.04)
GDP per capita 0.05 0.13 0.14 0.04 0.04 0.06 0.05
(0.20) (0.20) (0.20) (0.19) (0.19) (0.20) (0.20)
Elect. Local 0.31** 0.47***
(0.15) (0.17)
Elect. Local*F inance -0.25*
(0.14)
Elect. President -0.38* * -0.43 **
(0.17) (0.21)
Elect. President* Finance 0.07
(0.19)
Elect. Parliamentary -0.04 0.04
(0.16) (0.19)
Elect. Parliamentary*Finance -0.12
(0.16)
Constant -4.19* -5.43** -5.43** -4.49* -4.47* -4.20* -4.20*
(2.40) (2.48) (2.49) (2.40) (2.39) (2.41) (2.40)
N 1363 1363 1363 1363 1363 1363 1363
2 183.29*** 185.87*** 184.89*** 187.14*** 187.08*** 183.41*** 183.38***
Table 5 shows the results for the pooled Tobit regression for ex-ante state capture and our addi-
tional control variable, namely government spending (saving) to control for regulatory opportun-
ism. The results are in line with the previous regressions. The coef cients for economic growth
and government debt is positive and signi cant. Moreover, the coef cient for government spend-
ing is again positive and highly signi cant. Henceforth, the results con rm that ex-ante state
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Table 5 | Pooled Tobit results for ex-ante state capture and government spending (saving)
(1) (2) (3) (4) (5) (6) (7)
Finance 0.63*** 0.62*** 0.66*** 0.63*** 0.64*** 0.63*** 0.61***
(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04)
GDP Growth 0.07*** 0.08*** 0.07*** 0.07*** 0.07*** 0.07*** 0.07***
(0.01) (0.01) (0.01) (0.01) (0. 01) (0.01) (0.01)
Gov. Debt 0.32 0.39* 0.37* 0.38* 0.38* 0.33 0.34
(0.21) (0.21) (0.21) (0.21) (0.21) (0.21) (0.21)
Gov. De cit 0.01 0.03 0.03 0.01 0.01 0.01 0.01
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
GDP per capita 0.12 0.16 0.15 0.13 0.13 0.10 0.11
(0.13) (0.13) (0.13) (0.13) (0.13) (0.13) (0.13)
Elect. Local 0.16* 0.22**
(0.10) (0.10)
Elect. Local* Finance -0.13*
(0.08)
Elect. President -0.24** -0.23**
(0.11) (0.11)
Elect. President* Finance -0.05
(0.09)
Elect. Parliamentary 0.11 0.09
(0.11) (0.11)
Elect. Parliamentary* Finance 0.07
(0.09)
Constant -3.15** -3.75** -3.63** -3.45** -3.44** -3.05* -3.12**
(1.57) (1.61) (1.61) (1.58) (1.58) (1.58) (1.58)
Obs. 1363 1363 136 3 1363 1363 1363 1363
Left censored obs. 68 68 68 68 68 68 68
Right censored obs. 67 67 67 67 67 67 67
2 411.22*** 414.71*** 417.26*** 417.67*** 417.91*** 412.56*** 412.72***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
capture is strongly correlated with regulatory opportunism, which leads to increased govern-
ment spending. Similarly, we nd again that during local elections ex-ante state capture is more
likely, but without increased government spending. Moreover, the results once more show that
during the presidential elections ex-ante state capture is less likely to occur.
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DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
Regulatory state capture
In this section we try to control for regulatory capture by adding into the regression another
control variable that control whether anew law increased or decreased business restrictions.
Using this variable we hope to control for various groups that are related to private business,
which use their power in order to in uence the law in order to provide for example restrictions
for new entrants. Consequently, they are protecting their market position by creating monopo-
lies or oligopolies, which allow them to extract additional rents. In Poland, an example for
such restrictions, was the passing of anew law in 1997 introducing the need of aprofessional
real estate license. The license was issued by the Minister of Construction Industry based on
aquali cation procedure and a nal examination, which was monitored by the existing real
estate agents. Consequently, the existing real estate agents forced anew law that signi cantly
reduced competition in their market (Alwasiak et al., 2012).
Table 6 con rms that ex-ante state capture is likely to occur with the introducing of busi-
ness restrictions through anew law as the coef cient for the additional control variable is
positive and signi cant at 1% level. Consequently, regulatory capture is strongly related to
state capture in Poland. The results con rm also our previous ndings as the coef cient
for economic growth and government debt is positive and signi cant again. Moreover, the
coef cients showing the annual budget de cit and GDP per capita are positive and highly
signi cant.
As in previous regression we nd that ex-ante state capture is more likely to occur during local
election period. However, in the period of local election the ex-ante state capture is opposite to
business restrictions. In the same way as with increased public spending we assume that politi-
cal parties are prone to be in uence by incumbents during the election campaign, yet are afraid
to introduce business restrictions during this time. Indeed, the interactive term for parliamen-
tary election and business is negative and signi cant. Consequently, showing that regulatory
capture is less likely to occur during the elections periods in Poland.
Finally, the Table 7 presents the results for the pooled Tobit regression for ex-ante state cap-
ture and the control variable for business restrictions (freedom). The results are in line with
our previous ndings. The coef cients for business restrictions is again positive and highly
signi cant. Consequently, con rming that ex-ante state capture is likely to be accompanied
by regulatory capture. The coef cients for the remaining control variables are all once more
positive and highly signi cant. Only the coef cient showing local elections is insigni cant
now, yet the sign remains positive. Additionally, the interactive terms for local and parlia-
mentary elections and business restrictions are insigni cant, but as well remain negative.
While, the coef cient for presidential elections is negative and signi cant as in all the pervi-
ous regressions.
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Table 6 | Pooled Probit results for ex-ante state capture and business restrictions (freedom)
(1) (2) (3) (4) (5) (6) (7)
Business 1.63*** 1.62*** 1.87*** 1.62*** 1.58*** 1.63*** 1.71***
(0.09) (0.09) (0.34) (0.09) (0.10) (0.09) (0.11)
GDP Growth 0.11*** 0.12*** 0.12*** 0.11*** 0.11*** 0.11*** 0.12***
(0.03) (0.03) (0.04) (0.03) (0.03) (0.03) (0.03)
Gov. Debt 1.50*** 1.67*** 1.58*** 1.54*** 1.51*** 1.49*** 1.50***
(0.39) (0.40) (0.49) (0.39) (0.39) (0.39) (0.39)
Gov. De cit 0.13** 0.16*** 0.18*** 0.13** 0.13** 0.14** 0.13**
(0.05) (0.05) (0.06) (0.05) (0.05) (0.05) (0.05)
GDP per capita 0.89*** 1.01*** 1.04*** 0.88*** 0.85*** 0.90*** 0.89***
(0.25) (0.25) (0.30) (0.24) (0.24) (0.25) (0.25)
Elect. Local 0.40** 0.62***
(0.18) (0.22)
Elect. Local* Business -0.57* **
(0.21)
Elect. President -0.28 -0.35
(0.21) (0.23)
Elect. President* Business 0.25
(0.27)
Elect. Parliamentary -0.08 0.02
(0.20) (0.20)
Elect. Parliamentar y*Business -0.34*
(0.19)
Constant -15.01*** -16.87*** -16.82*** -15.08*** -14.74*** -15.03*** -15.11***
(3.02) (3.16) (4.21) (3.02) (3.02) (3.03) (3.00)
Obs. 1363 1363 136 3 1363 1363 1363 1363
2 331.79*** 331.31*** 31.30*** 333.70*** 332.55*** 332.19*** 331.66***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
Robustness test
To ensure confidence in our main findings, we ran two sets of robustness checks. The first
set keeps the exogenous variables and data samples the same as in the main runs, but uses
econometric methods that are distinct from the maximum likelihood estimation techniques.
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
Table 7 | Pooled Tobit results for ex-ante state capture and business restrictions (freedom)
(1) (2) (3) (4) (5) (6) (7)
Business 0.85*** 0.90*** 0.91*** 0.90*** 0.92*** 0.90*** 0.89***
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
GDP Growth 0.04*** 0.05*** 0.05*** 0.05*** 0.05*** 0.05*** 0.05***
(0.01) (0.01) (0.01) (0.01) (0. 01) (0.01) (0.01)
Gov. Debt 0.70*** 0.78*** 0.77*** 0.77*** 0.78*** 0.75*** 0.75***
(0.16) (0.17) (0.17) (0.17) (0.17) (0.17) (0.17)
Gov. De cit 0.06*** 0.07*** 0.07*** 0.06** 0.06*** 0.05** 0.06**
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
GDP per capita 0.41*** 0.50*** 0.50*** 0.48*** 0.48*** 0.45*** 0.46***
(0.10) (0.11) (0.11) (0.11) (0.11) (0.11) (0.11)
Ele ct. L ocal 0.13 0.13
(0.08) (0.08)
Elect. Local* Business -0.05
(0.06)
Elect. President -0.16* -0.17*
(0.09) (0.09)
Elect. President* Business -0.09
(0.07)
Elect. Parliamentary 0.12 0.13
(0.09) (0.09)
Elect. Parliamentar y* Business 0.08
(0.07)
Constant -6.71*** -7.96*** -7.85*** -7.70*** -7.73*** -7.43*** -7.49***
(1.24) (1.33) (1.34) (1.30) (1.30) (1.30) (1.30)
Obs. 1363 1363 1363 136 3 1363 1363 1363
Left censored obs. 68 68 68 68 68 68 68
Right censored obs. 67 67 67 67 67 67 67
2 1194*** 1176*** 1177*** 1178*** 1178*** 1174*** 1176***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
The second set uses the main econometric speci cations and data samples but alters the speci -
cations of the exogenous variables. The robustness results are summarized here, but are not all
shown in the tables for brevity.
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As alternative econometric speci cations, we tried the ordinary least squares approach in which
we employ both state-capture variables as the dependent variable. The results did not change
signi cantly, con rming the determinants of ex-ante state capture in Poland.
Turning next to our robustness checks that used alternative speci cations of the exogenous variables, we
tried the following additional variables: the duration of democracy (demo), EU entrance (EU) and the time
period of the crisis period (crisis). We use the rst variable as another explanation for regulatory capture
is provided by the so-called life-cycle theory of regulatory agencies by Martimort (1999), described also in
Estache and Martimort (1999). According to this theory anew regulatory agency undergoes alife-cycle.
When established an agency is subject to close scrutiny by the government and the general public, but
with time the attention focuses on other topics and the day-to-day activities. As aresult the regulators
are less in the spotlight of public attention. While at the beginning the regulator faces strong pressures
to effectively play his role as aprotector of the users against the industry, this pressure decreases with
time while the pressure by the industry remains constant. With this evolution, the regulator becomes
more prone to be dominated by the interests of the regulated rms. Consequently, we may assume that
with time the parliament, ministries and various agencies that were established at the beginning of the
transformation in Poland were more likely to be more prone to ex-ante state capture with time.
We use the second variable EU as we may expect that the accession to the EU reduced the ex-ante
state capture in Poland as the membership was conditioned on the adoption of policies designed
to ght corruption. However, once admission to the EU was granted, the set of sanctions avail-
able to punish violations of the previous set criteria or the failure to adopt or enforce the EU law
or regulation diminished (Vachudova, 2005). Consequently, the EU effect on ex-ante state capture
can be very short lived. Indeed, excessive corruption cases have been reported recently in Roma-
nia after the country joined the EU in 2007.
The last variable Crisis as we assume that the global nancial crisis of 2007 and later the Greek
crisis of 2009 made the general public more aware of the consequences of bad governments and
accompanying corruption and state capture. Henceforth, we expect that during the recent nan-
cial crisis the ex-ante state capture declined in Poland. On the other hand, Poland as the only
European country was not strongly affected by the nancial crisis. Consequently, the wake up
effect of the crisis can be insigni cant.
Table 8 presents the results of the robustness checks, whereas we present for each of the additional con-
trol variable in the rst speci cation the results of the probit regression and in the second for the Tobit
model. Again, our results chie y suggest that the ex-ante state capture is most likely to be accompanied
either by regulatory capture or opportunism as the coef cients for increased public nance and busi-
ness restrictions are once more positive and highly signi cant in all the speci cations.
In line with the life-cycle theory of regulatory agencies we nd that with the progress of democ-
racy the ex-ante state capture increased in Poland. The coef cient for the duration of democracy
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
is positive and signi cant. However, the interactive term democracy and nance or business are
insigni cant. In contrast to expectation we nd some evidence that the Poland’s accession to the
EU increased state-capture, which was accompanied by increased business restrictions. One
explanation for the results is that the accession was accompanied by the need to uniform the
Polish law with EU regulations, which often induced new restrictions. However, an alternative
explanation was provided by Kowalewski and Rybinski (2011). According to them alarge num-
ber of interest groups used the accession and the ongoing adjustment of the Polish law to the EU
regulation to ful ll their aims and introduce restrictions in their own interest.
Similarly, against our expectation we nd that during the crisis period the ex-ante state capture
was accompanied by additional business restrictions. However, we nd also some evidence that
during the crisis period the ex-ante state capture declined, which we attribute to the weak up
effect that lead to increased public securitization of political system and parties.
Finally, we employed additional robustness checks and used alternative speci cations using one
period lagged exogenous variables. The coef cients for the main variables are also of the same
order of magnitude as those in the main results for all the speci cations. In conclusion, the
results of the robustness tests con rm the statistically signi cant relationship between ex-ante
state capture and increase spending or increased business restrictions. The alternative econo-
metric methods and alternative exogenous variable speci cations all support our core results.
| Conclusions
Over the last few decades, research on state capture has concentrated on establishing the magnitude
and reasons for political corruption, in particular in transition countries and emerging markets. Only
afew studies to date have examined the reasons why and when state capture occurs. However, most
of these studies use either theoretical, survey or anegdotical evidence. Furthermore, none of them
presents empirical evidence regarding the motivation and reasons for ex-ante state capture.
In the present paper, we present for the rst time an insight into the reasons when state cap-
ture occurs in apost-transition country, using an original sample of 1.363 legal acts that were
passed in Poland in the years 1990–2011. Moreover, in this study we try to establish whether
the incumbents capture the reform for their own narrow interests (regulatory capture), or politi-
cians may abuse regulatory powers for own purposes (regulatory opportunism). Indeed, we nd
that state capture is accompanied by regulatory capture and regulatory opportunism in Poland.
Moreover, we document that state capture is more likely to occur during aperiod of economic
growth. Additionally, we nd that the period of local elections encourage state capture, what we
assume is related to buying votes. However, we nd also that the likelihood of passing legal acts
that increase public spending decreases during the local elections. Additionally, we nd that the
likelihood of state capture declines during presidential elections.
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Vol. 21, No. 4(123), 2013 DOI: 10.7206/mba.ce.2084-3356.82
Table 8 | Pooled Probit and Tobit results for ex-ante state capture and additional control variables
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Finance 0.85*** 0.70*** 0.82*** 0.65*** 0.82*** 0.69***
(0.23) (0.11) (0.08) (0.04) (0.07) (0.04)
Business 1.50*** 1.04*** 1.50*** 0.92*** 1.59*** 0.92***
(0.35) (0.10) (0.11) (0.03) (0.36) (0.03)
Demo 0.11 0.17*** 0.25* 0.10*
(0.11) (0.06) (0.14) (0.06)
Demo* Finance 0.01 -0.0 2
(0.10) (0.05)
Demo*Business 0.03 -0.06
(0.14) (0.04)
EU 0.06 0.14 0.64***
(0.15) (0.09) (0.17)
EU*Finance 0.14 0.09
(0.14) (0.08)
EU*Business 0.36* -0.03
(0.19) (0.06)
Crisis -0.51*** -0.10 -0.43 0.06
(0.19) (0.10) (0.28) (0.09)
Crisis*Finance 0.22 -0.18
(0.23) (0.12)
Crisis*Business 1.28*** -0.06
(0.47) (0.08)
Constant -1.45*** -1.00*** -1.68*** -0.55*** -1.21*** -0.66*** -1.32*** -0.31*** -1.06*** -0.57*** -1.11*** -0.33***
(0.28) (0.16) (0.36) (0.15) (0.10) (0.06) (0.12) (0.04) (0.08) (0.05) (0.28) (0.04)
N 1363 1363 1363 1363 1363 1363 1363 1363 1363 1363 1363 1363
2 175.71*** 384.69***327.76*** 1106*** 177.36*** 382.03***332.07***1098*** 184.86*** 380.60*** 19.87*** 1099***
*, **, and *** indicate sign i cance at 10%, 5%, and 1% levels.
t statistics based on robust standard errors in parenthesis
Nevertheless, we nd that state-capture has increased over time in Poland. In contrast to the
expectation we nd that the accession into the EU did not reduced the level of state-capture.
Indeed, we nd that after the EU accession the number of legal acts aimed at restricting markets
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S. Alwasiak, M. Lewandowska-Kalina, L. Kalina, O. Kowalewski, M. Możdżeń, K. Rybiński
DOI: 10.7206/mba.ce.2084-3356.82 Vol. 21, No. 4(123), 2013
have increased. However, we nd that the global nancial crisis of 2007 resulted in a wake up
effect in Poland as the likelihood of state capture declined in this period. Though, we nd that
at the same time the likelihood of regulatory capture has increased.
Our ndings con rms the existence of state capture in Poland and presents for the rst time
some of its determinants. Hence, we document that state-capture prevails even in leading transi-
tion countries, which is related to regulatory opportunism as well regulatory capture. While, we
show the political and economic development did not prevent the development of state capture
in Poland, yet the crisis resulted in awake up effect. However, whether this effect will be long
lasting is unknown. Moreover, aquestion remains unsolved on how to prevent further state cap-
ture in emerging countries. In order to solve this problem, however, more research is needed on
the determinants of state capture. Understanding the mechanism and factors determining state
capture may help to create institutional mechanisms that will be able to mitigate it in the future.
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