Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt

Using a large, original database of 385 politically connected firms under the Mubarak regime in Egypt, we document for the first time the negative impact of cronyism on economic growth. In the early 2000s, a policy shift in Egypt led to the expansion of crony activities into new, previously unconnected sectors. 4-digit sectors that experienced crony entry between 1996 and 2006 experienced lower aggregate employment growth during the period than those that did not. A wide array of supporting evidence indicates that this effect was causal, reflecting the mechanisms described in Aghion et al. (2001), and not due to selection. Crony entry skewed the distribution of employment toward smaller, less productive firms; crony firms did not enter into sectors that would have also grown more slowly even in the absence of crony entry; and they enjoyed multiple regulatory and fiscal privileges that reduced competition and investments by non-crony firms, including trade protection, energy subsidies, access to land, and favorable regulatory enforcement. Moreover, energy subsidies and trade protection account for the higher profits of politically connected firms.

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Bibliographic Details
Main Author: Inter-American Development Bank
Other Authors: Ishac Diwan
Format: Working Papers biblioteca
Language:English
Published: Inter-American Development Bank
Subjects:Firm Performance, Patronage, Productivity Growth, Industrial Productivity, Productivity Level, Economic Development, D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity, D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior, O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence,
Online Access:http://dx.doi.org/10.18235/0011766
https://publications.iadb.org/en/pyramid-capitalism-cronyism-regulation-and-firm-productivity-egypt
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spelling dig-bid-node-125532024-05-30T20:30:06ZPyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt 2016-10-05T00:00:00+0000 http://dx.doi.org/10.18235/0011766 https://publications.iadb.org/en/pyramid-capitalism-cronyism-regulation-and-firm-productivity-egypt Inter-American Development Bank Firm Performance Patronage Productivity Growth Industrial Productivity Productivity Level Economic Development D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence Using a large, original database of 385 politically connected firms under the Mubarak regime in Egypt, we document for the first time the negative impact of cronyism on economic growth. In the early 2000s, a policy shift in Egypt led to the expansion of crony activities into new, previously unconnected sectors. 4-digit sectors that experienced crony entry between 1996 and 2006 experienced lower aggregate employment growth during the period than those that did not. A wide array of supporting evidence indicates that this effect was causal, reflecting the mechanisms described in Aghion et al. (2001), and not due to selection. Crony entry skewed the distribution of employment toward smaller, less productive firms; crony firms did not enter into sectors that would have also grown more slowly even in the absence of crony entry; and they enjoyed multiple regulatory and fiscal privileges that reduced competition and investments by non-crony firms, including trade protection, energy subsidies, access to land, and favorable regulatory enforcement. Moreover, energy subsidies and trade protection account for the higher profits of politically connected firms. Inter-American Development Bank Ishac Diwan Philip Keefer Marc Schiffbauer Working Papers application/pdf IDB Publications en
institution BID
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country Estados Unidos
countrycode US
component Bibliográfico
access En linea
databasecode dig-bid
tag biblioteca
region America del Norte
libraryname Biblioteca Felipe Herrera del BID
language English
topic Firm Performance
Patronage
Productivity Growth
Industrial Productivity
Productivity Level
Economic Development
D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity
D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior
O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence
Firm Performance
Patronage
Productivity Growth
Industrial Productivity
Productivity Level
Economic Development
D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity
D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior
O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence
spellingShingle Firm Performance
Patronage
Productivity Growth
Industrial Productivity
Productivity Level
Economic Development
D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity
D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior
O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence
Firm Performance
Patronage
Productivity Growth
Industrial Productivity
Productivity Level
Economic Development
D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity
D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior
O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence
Inter-American Development Bank
Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
description Using a large, original database of 385 politically connected firms under the Mubarak regime in Egypt, we document for the first time the negative impact of cronyism on economic growth. In the early 2000s, a policy shift in Egypt led to the expansion of crony activities into new, previously unconnected sectors. 4-digit sectors that experienced crony entry between 1996 and 2006 experienced lower aggregate employment growth during the period than those that did not. A wide array of supporting evidence indicates that this effect was causal, reflecting the mechanisms described in Aghion et al. (2001), and not due to selection. Crony entry skewed the distribution of employment toward smaller, less productive firms; crony firms did not enter into sectors that would have also grown more slowly even in the absence of crony entry; and they enjoyed multiple regulatory and fiscal privileges that reduced competition and investments by non-crony firms, including trade protection, energy subsidies, access to land, and favorable regulatory enforcement. Moreover, energy subsidies and trade protection account for the higher profits of politically connected firms.
author2 Ishac Diwan
author_facet Ishac Diwan
Inter-American Development Bank
format Working Papers
topic_facet Firm Performance
Patronage
Productivity Growth
Industrial Productivity
Productivity Level
Economic Development
D24 - Production • Cost • Capital • Capital Total Factor and Multifactor Productivity • Capacity
D72 - Political Processes: Rent-Seeking Lobbying Elections Legislatures and Voting Behavior
O47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence
author Inter-American Development Bank
author_sort Inter-American Development Bank
title Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
title_short Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
title_full Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
title_fullStr Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
title_full_unstemmed Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt
title_sort pyramid capitalism: cronyism, regulation, and firm productivity in egypt
publisher Inter-American Development Bank
url http://dx.doi.org/10.18235/0011766
https://publications.iadb.org/en/pyramid-capitalism-cronyism-regulation-and-firm-productivity-egypt
work_keys_str_mv AT interamericandevelopmentbank pyramidcapitalismcronyismregulationandfirmproductivityinegypt
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