Pyramid Capitalism : Political Connections, Regulation, and Firm Productivity in Egypt / Diwan, Ishac

Format:

Book

Government document

Author/Creator:

Diwan, Ishac

Contributor:

Diwan, Ishac

Keefer, Philip

Schiffbauer, Marc

Series:

Policy research working papers.

World Bank e-Library.

Language:

English

Subjects (All):

Finance and Financial Sector Development.

Macroeconomics and Economic Growth.

Private Sector Development.

Local Subjects:

Finance and Financial Sector Development.

Macroeconomics and Economic Growth.

Private Sector Development.

Physical Description:

1 online resource (41 pages)

Other Title:

Pyramid Capitalism

Place of Publication:

Washington, D.C., The World Bank, 2015

System Details:

data file

Summary:

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.