Are Politically Connected Firms Turtles or Gazelles? Evidence from the Egyptian Uprising

Abstract

Using an original firm-level dataset and utilizing the incidence of the Egyptian uprising of 2011, this paper provides an empirical investigation of the effects of firms' political connections on employment growth in Egypt. We use the differences in differences (DiD) framework to compare employment growth in both politically connected firms (PCFs) and their unconnected counterparts before and after the Egyptian uprising. To minimize possible bias in the DiD estimation due to dealing with a heterogeneous group of firms, we apply the propensity score matching (PSM). We find that politically connected firms have decreased their job creation after the uprising. (JEL: D72, E24, J21) I INTRODUCTION Unemployment, especially among youths, has been and continues to be a critical structural problem for most of the Arab countries even before recent uprisings and political $ This work was supported by the Economic Research Forum (ERF) as part of the ERF project on "The Political Economy of State Business Relations and of Growth in the MENA Region (Phase II)". The authors would like to thank the ERF and the refereeing committee members for the provided fund and follow-ups. We would like to thank Amirah El-Haddad and Ishaq Diwan for their valuable comments on early versions of this paper. We would like also to acknowledge helpful comments from the participants at the following conferences and workshops: i) The political economy of state business relations and growth in the Middle

Social Capital and Workers' Job Prospects in the MENA Region

“…Assaad 2014; Krafft and Assaad 2016], highlighting the role of market barriers and unfair competition between formal and informal establishments, low labour productivity, ineffective skill acquisition, and false expectations of labour market prospects [Assaad et al 2018]. These studies have largely overlooked the role of social capital beyond mentioning the benefits of political connections among firms allied with the ruling regimes [Diwan et al 2016[Diwan et al , 2019Aly and Abdel-Latif 2018;Francis et al 2018;Kubinec 2018], the role of workers' wasta in organisations' recruiting [Marktanner and Wilson 2016;Ta'Amnha et al 2016;, or the influence of parental attributes, resources, and connections on workers' prospects Hlasny 2019, 2022a,b].…”