IDEAS home Printed from https://ideas.repec.org/p/erg/wpaper/1054.html
   My bibliography  Save this paper

Do Political Connections Reduce Job Creation? Evidence from Lebanon

Author

Listed:
  • Ishac Diwan
  • Jamal Ibrahim Haidar

    (Harvard University)

Abstract

Using firm-level census data, we determine how politically-connected firms (PCFs) reduce job creation in Lebanon. After observing that large firms account for the bulk of net job creation, we find that PCFs are larger and create more jobs, but are also less productive, than non-PCFs in their sectors. On a net basis, at the sector-level, each additional PCF reduces jobs created by 7.2% and jobs created by non-PCFs by 11.3%. These findings support the notion that politically-connected firms are used for clientelistic purposes in Lebanon, exchanging privileges for jobs that benefit their patrons’ supporters.

Suggested Citation

  • Ishac Diwan & Jamal Ibrahim Haidar, 2016. "Do Political Connections Reduce Job Creation? Evidence from Lebanon," Working Papers 1054, Economic Research Forum, revised 10 2016.
    • Handle: RePEc:erg:wpaper:1054
    as

    Download full text from publisher

    File URL: http://erf.org.eg/wp-content/uploads/2016/10/1054.pdf
    Download Restriction: no
    File URL: http://bit.ly/2eg5NlS
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu & Tarek A. Hassan & Ahmed Tahoun, 2018. "The Power of the Street: Evidence from Egypt’s Arab Spring," The Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 1-42.
    2. Aigner, Dennis J., 1973. "Regression with a binary independent variable subject to errors of observation," Journal of Econometrics, Elsevier, vol. 1(1), pages 49-59, March.
    3. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    4. Maurer, Noel & Haber, Stephen, 2007. "Related Lending and Economic Performance: Evidence from Mexico," The Journal of Economic History, Cambridge University Press, vol. 67(3), pages 551-581, September.
    5. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
    6. İzak Atiyas & Ozan Bakis, 2015. "Structural Change and Industrial Policy in Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(6), pages 1209-1229, November.
    7. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
    8. Mary Hallward-Driemeier & Gita Khun-Jush & Lant Pritchett, 2014. "Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," NBER Chapters, in: African Successes, Volume I: Government and Institutions, pages 215-260, National Bureau of Economic Research, Inc.
    9. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    10. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    11. Leuz, Christian & Oberholzer-Gee, Felix, 2006. "Political relationships, global financing, and corporate transparency: Evidence from Indonesia," Journal of Financial Economics, Elsevier, vol. 81(2), pages 411-439, August.
    12. Meghana Ayyagari & Asli Demirguc-Kunt & Vojislav Maksimovic, 2014. "Who creates jobs in developing countries?," Small Business Economics, Springer, vol. 43(1), pages 75-99, June.
    13. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    14. Henry,Clement Moore & Springborg,Robert, 2010. "Globalization and the Politics of Development in the Middle East," Cambridge Books, Cambridge University Press, number 9780521519397, October.
    15. Klapper, Leora & Richmond, Christine, 2011. "Patterns of business creation, survival and growth: Evidence from Africa," Labour Economics, Elsevier, vol. 18(S1), pages 32-44.
    16. Rijkers, Bob & Arouri, Hassen & Freund, Caroline & Nucifora, Antonio, 2014. "Which firms create the most jobs in developing countries? Evidence from Tunisia," Labour Economics, Elsevier, vol. 31(C), pages 84-102.
    17. David Neumark & Brandon Wall & Junfu Zhang, 2011. "Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 16-29, August.
    18. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
    19. Henry,Clement Moore & Springborg,Robert, 2010. "Globalization and the Politics of Development in the Middle East," Cambridge Books, Cambridge University Press, number 9780521737449, October.
    20. Aga,Gemechu A. & Francis,David C. & Rodriguez Meza,Jorge Luis, 2015. "SMEs, age, and jobs : a review of the literature, metrics, and evidence," Policy Research Working Paper Series 7493, The World Bank.
    21. Haltiwanger, John & Scarpetta, Stefano & Schweiger, Helena, 2014. "Cross country differences in job reallocation: The role of industry, firm size and regulations," Labour Economics, Elsevier, vol. 26(C), pages 11-25.
    22. Rock, Michael T. & Bonnett, Heidi, 2004. "The Comparative Politics of Corruption: Accounting for the East Asian Paradox in Empirical Studies of Corruption, Growth and Investment," World Development, Elsevier, vol. 32(6), pages 999-1017, June.
    23. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
    24. AIGNER, Dennis J., 1973. "Regression with a binary independent variable subject to errors of observation," LIDAM Reprints CORE 130, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    25. World Bank, 2014. "Jobs or Privileges : Unleashing the Employment Potential of the Middle East and North Africa," World Bank Publications - Reports 19292, The World Bank Group.
    26. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    27. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
    28. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    29. Daron Acemoğlu & James A. Robinson, 2016. "Paths to Inclusive Political Institutions," Studies in Economic History, in: Jari Eloranta & Eric Golson & Andrei Markevich & Nikolaus Wolf (ed.), Economic History of Warfare and State Formation, pages 3-50, Springer.
    30. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    31. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    32. Arne Bigsten & Mulu Gebreeyesus, 2007. "The Small, the Young, and the Productive: Determinants of Manufacturing Firm Growth in Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 55(4), pages 813-840, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ragui Assaad & Caroline Krafft & Shaimaa Yassin, 2020. "Job creation or labor absorption? An analysis of private sector job growth in Egypt," Middle East Development Journal, Taylor & Francis Journals, vol. 12(2), pages 177-207, July.
    2. Caroline Krafft & Reham Rizk, 2018. "The Promise and Peril of Youth Entrepreneurship in MENA," Working Papers 1257, Economic Research Forum, revised 19 Nov 2018.
    3. Mounir Mahmalat & Denise Sumpf, 2020. "Entrepreneurship And Governance In The Arab Region — A Review Of Recent Literature To Prioritize Policy Challenges," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 25(01), pages 1-26, April.
    4. Mounir Mahmalat & Declan Curran, 2020. "Fractionalization and reform: a framework of political collaboration with application to Lebanon," Economics of Governance, Springer, vol. 21(2), pages 187-214, June.
    5. El-Haddad Amirah, 2020. "Picking Winners: Identifying Leading Sectors for Egypt and Tunisia Using the Product Space Methodology," Review of Middle East Economics and Finance, De Gruyter, vol. 16(1), pages 1-80, April.
    6. Hany Abdel-Latif & Hassan Aly, 2019. "Are politically connected firms turtles or gazelles? Evidence from the Egyptian uprising," Working Papers 1304, Economic Research Forum, revised 2019.
    7. World Bank, 2017. "Towards Privilege-Resistant Economic Policies in MENA," World Bank Publications - Reports 27525, The World Bank Group.
    8. El-Haddad, Amirah, 2020. "Redefining the social contract in the wake of the Arab Spring: The experiences of Egypt, Morocco and Tunisia," World Development, Elsevier, vol. 127(C).
    9. El-Haddad, Amirah, 2018. "Exporting for growth: identifying leading sectors for Egypt and Tunisia using the Product Space Methodology," IDOS Discussion Papers 25/2018, German Institute of Development and Sustainability (IDOS).
    10. Davide Luca, 2018. "Picking Winners at the Ballot Box: Votes and Local Economic Growth in Turkey," Working Papers 1232, Economic Research Forum, revised 10 Oct 2018.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ishac Diwan & Jamal Ibrahim Haidar, 2021. "Political Connections Reduce Job Creation: Firm-level Evidence from Lebanon," Journal of Development Studies, Taylor & Francis Journals, vol. 57(8), pages 1373-1396, August.
    2. Ishac Diwan & Philip Keefer & Marc Schiffbauer, 2020. "Pyramid capitalism: Cronyism, regulation, and firm productivity in Egypt," The Review of International Organizations, Springer, vol. 15(1), pages 211-246, January.
    3. Ishac Diwan & Philip Keefer & Marc Schiffbauer, 2015. "Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt," CID Working Papers 291, Center for International Development at Harvard University.
    4. Diwan, Ishac & Schiffbauer, Marc, 2018. "Private banking and crony capitalism in Egypt," Business and Politics, Cambridge University Press, vol. 20(3), pages 390-409, September.
    5. Chekir Hamouda & Diwan Ishac, 2014. "Crony Capitalism in Egypt," Journal of Globalization and Development, De Gruyter, vol. 5(2), pages 177-211, December.
    6. Diwan,Ishac & Keefer,Philip E. & Schiffbauer,Marc Tobias, 2015. "Pyramid capitalism : political connections, regulation, and firm productivity in Egypt," Policy Research Working Paper Series 7354, The World Bank.
    7. Ufuk Akcigit & Salomé Baslandze & Francesca Lotti, 2023. "Connecting to Power: Political Connections, Innovation, and Firm Dynamics," Econometrica, Econometric Society, vol. 91(2), pages 529-564, March.
    8. Lehrer, Nimrod David, 2018. "The value of political connections in a multiparty parliamentary democracy: Evidence from the 2015 elections in Israel," European Journal of Political Economy, Elsevier, vol. 53(C), pages 13-58.
    9. Stephen Esaku, 2022. "Which firms drive employment growth in Sub-Saharan Africa? Evidence from Kenya," Small Business Economics, Springer, vol. 59(1), pages 383-396, June.
    10. Blessing Atwine & Ibrahim Mike Okumu & John Bosco Nnyanzi, 2023. "What drives the dynamics of employment growth in firms? Evidence from East Africa," Journal of Innovation and Entrepreneurship, Springer, vol. 12(1), pages 1-25, December.
    11. Hallward-Driemeier,Mary C. & Kochanova,Anna & Rijkers,Bob, 2020. "Does Democratization Promote Competition? : Indonesian Manufacturing Pre and Post Suharto," Policy Research Working Paper Series 9112, The World Bank.
    12. Daron Acemoglu & Tarek A. Hassan & Ahmed Tahoun, 2018. "The Power of the Street: Evidence from Egypt’s Arab Spring," The Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 1-42.
    13. Chung-Hua Shen & Chih-Yung Lin, 2016. "Political connections, financial constraints, and corporate investment," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 343-368, August.
    14. Jackowicz, Krzysztof & Kozłowski, Łukasz & Podgórski, Błażej & Winkler-Drews, Tadeusz, 2020. "Do political connections shield from negative shocks? Evidence from rating changes in advanced emerging economies," Journal of Financial Stability, Elsevier, vol. 51(C).
    15. Zhong-qin Su & Hung-Gay Fung, 2013. "Political Connections and Firm Performance in Chinese Companies," Pacific Economic Review, Wiley Blackwell, vol. 18(3), pages 283-317, August.
    16. Feng, Xunan & Johansson, Anders C., 2018. "Firm Ownership, Political Participation, and Access to Finance through Public Bond Offerings in China," Stockholm School of Economics Asia Working Paper Series 2018-50, Stockholm School of Economics, Stockholm China Economic Research Institute.
    17. Stephen Gray & Iman Harymawan & John Nowland, 2016. "Political and government connections on corporate boards in Australia: Good for business?," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 3-26, February.
    18. Carvalho, Augusto & Guimaraes, Bernardo, 2018. "State-controlled companies and political risk: Evidence from the 2014 Brazilian election," Journal of Public Economics, Elsevier, vol. 159(C), pages 66-78.
    19. Tarek A Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2019. "Firm-Level Political Risk: Measurement and Effects," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(4), pages 2135-2202.
    20. Hamouda Chekir & Ishac Diwan, 2013. "Distressed Whales on the Nile – Egypt Capitalists in the Wake of the 2010 Revolution," Working Papers 747, Economic Research Forum, revised Apr 2013.

    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erg:wpaper:1054. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sherine Ghoneim (email available below). General contact details of provider: https://edirc.repec.org/data/erfaceg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.