Are politically connected firms turtles or gazelles? Evidence from the Egyptian uprising

Source: Economic Research Forum

Author(s): Hany Abdel-Latif and Hassan Aly

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Using an original firm-level database 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. Our unique dataset covers 4008 firms between 2004-2016, of which we were able to identify 735 politically connected firms. We set-up a quasi-natural experiment environment to explore how job creation responds to negative shocks to political connections. 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). In addition, we estimate the quantile DiD at different points in the distribution. We find that connected firms before the shock decreased their job creation after the uprising. This implies that employment growth in PCFs has declined after receiving a negative political shock.

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