Former Communist Party Membership and Present-day Entrepreneurship

After the collapse of communism in Central and Eastern Europe, former party members were particularly likely to start businesses and become entrepreneurs. What remains unclear, however, is whether this entrepreneurial activity was driven by the resources, information, and opportunities provided by former party membership or because individuals with specific individual attributes were more likely to become Communist cadres (self-selection). This study is the first to separate the causal effect of former Communist party membership from self-selection. Using individual-level Life in Transition-III survey data and a control function approach, we find that former Communist party membership has facilitated business set-up but not business longevity in Central and Eastern European countries. We also show that people who joined the former ruling party had fewer of the traits associated with entrepreneurship such as unobservable personality traits, ability, motivation, and entrepreneurial aptitude, and as such were negatively self-selected. We show that former Communist party membership still matters for business practices, business ethics, and the nature of doing business in transition economies. © 2020, The Author(s).We are thankful to two anonymous referees and the Associate Editor László Szerb, as well as Frank Fossen, Michael Wyrwich, Aard Groen, Olga Belousova, Andrew Austin, Ira N. Gang, and participants of the University of Groningen’s Centre of Entrepreneurship Research Seminar for valuable comments and suggestions. Popova acknowledges the support from Russian Science Foundation grant No. 19-18-00262