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Pyramid capitalism : political connections, regulation, and firm productivity in Egypt

Author

Listed:
  • Diwan,Ishac
  • Keefer,Philip E.
  • Schiffbauer,Marc Tobias

Abstract

This paper uses an original database of 469 politically connected firms under the Mubarak regime in Egypt to explore the economic effects of close state-business relations. Previous research has shown that political connections are lucrative. The paper addresses several questions raised by this research. Do connected firms receive favorable regulatory treatment? They do: connected firms are more likely to benefit from trade protection, energy subsidies, access to land, and regulatory enforcement. Does regulatory capture account for the high value of connected firms? In the sample, regulatory capture as revealed by energy subsidies and trade protection account for the higher profits of politically connected firms. Do politically connected firms hurt aggregate growth? The paper identifies the growth effects of the entry of politically connected firms by comparing detailed 4-digit sectors where they entered, between 1996 and 2006, and sectors that remained unconnected. The entry of connected firms into new, modern, and previously unconnected sectors slows aggregate employment growth and skews the distribution of employment toward less productive, smaller firms.

Suggested Citation

  • 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.
  • Handle: RePEc:wbk:wbrwps:7354
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    Cited by:

    1. repec:eee:inecon:v:110:y:2018:i:c:p:50-62 is not listed on IDEAS
    2. Steffen Hertog, 2016. "Is There an Arab Variety of Capitalism?," Working Papers 1068, Economic Research Forum, revised 12 Jun 2016.

    More about this item

    Keywords

    E-Business; Small Scale Enterprises; Economic Theory&Research; Banks&Banking Reform; Microfinance;

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