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


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


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.

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  • 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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    References listed on IDEAS

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    12. Mara Faccio, 2010. "Differences between Politically Connected and Nonconnected Firms: A Cross‐Country Analysis," Financial Management, Financial Management Association International, vol. 39(3), pages 905-928, September.
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    15. repec:wbk:wbpubs:13523 is not listed on IDEAS
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    Cited by:

    1. Dragan Tevdovski & Joana Madjoska & Petar Jolakoski & Branimir Jovanovic & Viktor Stojkoski, 2022. "Firm Profits and Government Activity: An Empirical Investigation," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 24(1), pages 43-82, June.
    2. Bussolo, Maurizio & Commander, Simon & Poupakis, Stavros, 2018. "Political Connections and Firms: Network Dimensions," IZA Discussion Papers 11498, Institute of Labor Economics (IZA).
    3. Robert Kubinec, 2018. "Patrons or Clients? Measuring and Experimentally Evaluating Political Connections of Firms in Morocco and Jordan," Working Papers 1280, Economic Research Forum, revised 26 Dec 2018.
    4. Ding, Haoyuan & Fan, Haichao & Lin, Shu, 2018. "Connect to trade," Journal of International Economics, Elsevier, vol. 110(C), pages 50-62.
    5. Kubinec, Robert & Lee, Haillie Na-Kyung & Tomashevskiy, Andrey, 2020. "How to Get Away with Spreading COVID-19: Political Connections and Pandemic Response," SocArXiv 68fpr, Center for Open Science.
    6. Guangyuan Guo & Jing Li & Dan Wang & Lina Zhang, 2022. "Political connection, contract intensity, and OFDI: Evidence from China," Journal of Economic Surveys, Wiley Blackwell, vol. 36(3), pages 534-557, July.
    7. Yu Ri KIM & TODO Yasuyuki, 2019. "Are Politically Connected Firms More Likely to Export?," Discussion papers 19049, Research Institute of Economy, Trade and Industry (RIETI).
    8. Steffen Hertog, 2016. "Is There an Arab Variety of Capitalism?," Working Papers 1068, Economic Research Forum, revised 12 Jun 2016.

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