Ishac Diwan - Harvard University Philip Keefer - The World Bank Marc Schiffbauer - The World Bank ERF Seminar on The Political Economy of the Private Sector in the Middle East Marrakech, Morocco, December 21-22, 2016 www.erf.org.eg

1. Pyramid Capitalism: Cronyism, Regulation,
and Employment Growth in Egypt
Ishac Diwan, Philip Keefer and Marc Schiffbauer
Dec 2016

2. Motivation
• A wealth of research has documented the value of
political connections, giving rise to a central question:
Does cronyism have only distributional
consequences, or does it also influence
aggregate economic growth?

3. Empirical literature
• Political connections account for about 20% of firm value
(IDN: Fisman 2001; Egypt: Chekir and Diwan 2012; Acemoglu
et al. 2016).
• Connected firms enjoy policy privileges: better access to credit
(e.g. Cull and Xu 2005; Khwaja and Mian 2005), access to
government licenses (Rijkers et al. 2015).
• Impact on firm performance ambiguous (Roberts 1990;
Ferguson and Voth 2008; Haber and Maurer 2007 versus
Bertrand et al. 2007; Faccio 2007, 2010).

4. Theoretical literature
1. Coordination failure prevent larger scale investments (Murphy, Schleifer,
Vishny 1989).
→ Pro: public funds channeled through few connected firms can overcome
coordination failure.
2. Connected firms lobby for inefficient protection from competition.
→ Contra: these closed deals discourage growth of non-connected firms that do
not grow (Aghion et al. 2001).
• “Pro” might rather apply for low income countries and “Contra” for middle
income countries where efficiency in existing markets matters.
• Hypothesis: connected firms did not create enough jobs in Egypt but
suppressed the growth opportunities of non-connected firms, limiting
aggregate growth.
4

5. Contribution
1. Construct novel database for Mubarak’s Egypt:
• larger sample of 385 politically connected firms;
• policy shift around 2000 led to expansion of connected
firms into many new activities, allowing us to compare
growth in sectors that experienced crony entry and those
that did not.
2. Document for the first time the negative impact
of cronyism on growth.
3. Array of supporting evidence that growth impact
not due to selection effects and consistent with
the mechanism in Aghion et al. (2001).

6. Main findings
1. Quasi-experiment: 4-digit sectors that experienced crony entry
between 1996 and 2006 experienced lower aggregate
employment growth than comparable sectors that did not.
2. Growth effect not due to self selection: crony firms did not enter
into sectors that would have also grown more slowly even in the
absence of crony entry.
3. Mechanism consistent with Aghion (2001):
• Crony entry skewed the distribution of employment in these sectors
towards smaller, less productive firms.
• Crony firms enjoyed multiple privileges that reduced competition and
investments by non-crony firms, including trade protection, energy
subsidies, access to land, and favorable regulatory enforcement.
• These privileges account for their higher profitability.

7. Egyptian capitalism in the 2000s
• Nasser: state-led development.
• Sadat: timid opening to the private sector, constitution of a
business elite: marriage of state bourgeoisie and old money.
• Mubarak1: gradual economic without political liberalization:
– Private investments allowed in strategic sectors (telecom, steel,
construction, cement, …).
• Mubarak2 (around 2000): in addition, connected business elites
take up top political posts and enter new economic activities:
– Macro stabilization, economic reforms (trade, finance, privatizations).
– But: private investment and formal job creation remain small.
– Rise of non-tariff barriers, high concentration in bank lending, energy
subsidies to industry.

8. Identification of politically connected firms
8
• We identify politically connected businessmen who managed or
owned a firm and, at the same time, controlled influential political posts
in the government or the ruling party (NDP) before 2011.
• Several were ministers or heads of policy committees in the NDP.
• Interviewed banks, lawyers, and anti-corruption activists to double-check list.
Type of political connection across firms and by 4-digit sectors
Type of PC firm Number of PC
firms of that
type
Number of 4-digit sectors
(out of 320) with at least one
PC firm of that type
Politically connected owner + CEO 47 48
Politically connected owner 334 142
Any type incl. board members 385 155

9. Additional data
9
• Information is combined with establishment census to measure
4-digit sector performance; employment and firm characteristics
of all economic establishments (2.4 million) in 1996 and 2006.
• Additional data sets to measure 4-digit sector policy privileges
such as non-tariff barriers (WITS), energy intensities (UN), access
to land and enforcement (WBES); and firm performance (Orbis)

10. Empirical identification: policy shift led to expansion of
crony firm entry into many new activities around 2000
• Quasi-experimental setting: observe entry of 35 politically connected firms
into 26 out of 165 previously unconnected 4-digit sectors between 1996 and
2006, permitting us to estimate a difference-in-difference effect.
• Estimate whether employment growth declined from 1996-2006 after crony
entry into sectors that were initially unconnected relative to sectors that
remained unconnected.
• Identification assumption: politically connected firms did on average NOT
enter into intrinsically low growth sectors.
10
∆𝑌𝑠𝑡: employment growth of the 4-digit sector s between 1996 and 2006
𝑃𝐶𝐸𝑛𝑡𝑟𝑦: entry of politically connected firms between 1997 and 2006
𝑁𝑃𝐶: sectors without crony firms before 1997
X is a matrix of control variables (size and maturity of sectors); S a matrix of sector dummies
∆𝑌𝑠,2006−1996
= 𝛽 𝐸 𝑃𝐶𝐸𝑛𝑡𝑟𝑦𝑠,1997−2006 + 𝛽 𝑁 𝑁𝑃𝐶𝑠,1996 + 𝛽 𝐸𝑁 𝑃𝐶𝐸𝑛𝑡𝑟𝑦𝑠,1997−2006 ∗ 𝑁𝑃𝐶𝑠,1996
+ 𝛽 𝑋 𝑋𝑠,1996 + 𝑆 + 𝜀 𝑠,2006

11. Lower aggregate sector growth after crony firms
enter into initially unconnected sectors
Employment growth 1996-2006
CEO Owner Broad
Entry PC 32.2* 36.1** 7.15 10.3 7.40 7.10
(1.95) (2.09) (0.84) (1.24) (1.20) (1.01)
Not connected before 1996 -6.32 15.1 -6.95
(-0.58) (0.82) (-0.46)
(Entry PC) * -24.8** -18.7** -14.7*
(Not connected before 1996) (-2.17) (-3.47) (-1.77)
Sector size -.418** -.401** -.420** -.382** -.422** -.376**
(-2.44) (-2.17) (-2.37) (-2.16) (-2.37) (-2.31)
Sector maturity 12.5 12.6 12.4 12.3 12.6 12.8
(1.57) (1.56) (1.51) (1.53) (1.55) (1.60)
No. of sectors 224 224 224 224 224 224
R-squared 0.161 0.163 0.155 0.159 0.159 0.161
1-digit sector dummies Yes Yes Yes Yes Yes Yes

12. Crony entry skewed distribution of employment
towards smaller, less productive firms
Employment distribution before / after crony entry into previously unconnected sectors

13. Identification assumption is plausible
On its face, it seems implausible that connected firms would avoid high growth
sectors (Loewe, 2013).
1. Crony firms did NOT enter more mature (“dying”:) sectors: Cronies entered
sectors with higher share of young firms in 1996.
2. In other countries, the 4-digit sectors entered by connected firms in Egypt
exhibited, if anything, faster growth than the sectors that remained
unconnected.
Growth of treatment and control group sectors in all other countries from 1996-2006
Employment growth 1996-2006 Labor productivity growth 1996-2006
All
Countries
All
Developing MENA ECA
All
Countries
All
Developing MENA ECA
Difference crony
versus non-crony
sectors, 1996-2006
.714** 1.41** -.025 2.99 .728** .961 .331 2.71**
(2.08) (2.81) (-0.01) (1.35) (2.13) (1.39) (0.45) (3.56)

14. • Energy subsidies to industry accounted for 2.9% of GDP in 2010 (in comparison, public investment
was 6.2% of GDP in 2010).
• Operating in high energy intensive sectors (cement, steel, etc.) requires exclusive operating license
which have been granted to only few (connected) firms.
Escape competition through privileges 1:
politically connected firms obtain the bulk of energy
subsidies to industry
14
Share of Connected and All firms in high, medium, and low energy intensive manufacturing sectors
45%
26%
8%
29%
0%
10%
20%
30%
40%
50%
60%
high energy-intensive low energy-intensive
Politically connected firms All manufacturing establishments
Chi2-test Pr = 0.000 Chi2-test Pr = 0.173

15. Escape competition through privileges 2:
Industries with PC firms are more likely to be protected
from import competition
15
• NTM protection in Egypt among highest in the world (Malouche et al., 2013).
• 71% of PC firms are protected by at least three Non-Tariff Measures (NTMs) relative to
3% of all firms.
20
25
30
35
40
45
50
55
60
8
9
10
11
12
13
14
15
16
17
1995 1998 2001 2004 2007
Average tariffs (weighted) Year latest revision of NTMs on imports
Tariffs and NTM amendments since 1995
Number of Class
B NTMs per
industry
% PC
Firms
% all
firms
Pearson
Chi 2 –
test (p-
value)
At least 1 82% 56% 0.00
At least 2 82% 27% 0.00
At least 3 71% 4% 0.00
At least 4 26% 3% 0.00
At least 5 18% 3% 0.00
At least 6 15% 2% 0.00
At least 7 13% 0% 0.00
At least 8 10% 0% 0.00
Share of Connected and All firms protected by NTMs

16. Escape competition through privileges 3-6:
Politically connected firms also benefitted from other
policy privileges
16
• Within the same 2-digit sector, firms in 4-digit industries with
more politically connected firms report greater access to
government land, credit, and industrial zones.
• PC firms also used their connections to reduce their own
regulatory burden (policy implementation).

17. PC firms have higher profit margins only if protected from import
competition or benefitting from energy subsidies
17
Dependent Variable: ln(Profits/Revenues)
PC firms 1.58*** 1.38*** 1.36** -2.32 1.56** .267
(3.24) (2.30) (2.30) (-1.19) (2.37) (0.33)
NTMs -.144 -.218
(-0.56) (-0.78)
PC firms * NTMs 1.03**
(2.40)
Dummy high energy -.634 -2.60**
(-1.04) (-2.73)
PC firms * Dummy high energy 4.55**
(3.77)
Year Dummies Yes Yes Yes Yes Yes Yes
Age No Yes Yes Yes Yes Yes
No. of firms 253 253 253 253 253 253
R2 0.059 0.061 0.063 0.069 0.063 0.094
𝑌𝑖𝑗𝑡 = 𝛽𝑃𝐶𝑗𝑡 + 𝛾𝐸𝑛𝑒𝑟𝑔𝑦𝑗𝑡 + 𝛿 𝑃𝐶𝑗𝑡 ∗ 𝐸𝑛𝑒𝑟𝑔𝑦𝑗𝑡 + 𝜃𝑋𝑖𝑡 + 𝜏 𝑡 + 𝜀𝑖𝑗𝑡
𝑌𝑖𝑗𝑡 Profit (margin) of firm i in industry j and time t
𝑃𝐶𝑗𝑡 number of politically connection firms in industry j and time t
Energy dummy equal to 1 for high energy intensive sectors
X age of firm i

18. Conclusion
• We find that:
– a small number of entrepreneurs have managed to control a rising and substantial
share of the Egyptian formal private sector over time.
– The PC firms tend to operate behind trade barriers, and benefit disproportionately
from energy subsidies, access to land, industrial zones, bank loans, or fast-track
regulatory enforcement.
– They are not more efficient than NPC firms -- their higher profits derive from their
concentration in protected or subsidized sectors.
– Job creation declines after crony firms enter into initially unconnected sectors.
• These effects add up to a sizable negative aggregate growth impact:
– If energy subsides are moved to public investment, it can rise by 50%.
– Employment growth over a ten year period declined by 19-25%-points (1.7-2.3%-
points annually) in initially unconnected sectors after firms managed or owned by
politically connected business enter.

19. BACKUP SLIDES

20. Lack of formal sector job creation in private sector
Source: World Bank (2014): More Jobs, Better Jobs: A priority for Egypt
15 16 16
32 26 23
34
38 47
0
10
20
30
40
50
60
70
80
90
100
1998 2006 2012
Job status of men in the labor force, aged 15-64
unemployed
farm
informal private
public
formal private

21. Real GDP moderate

22. Private investment remains low, capital
flight high
-5
0
5
10
15
20
25
30
35
40
1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900 1900
Total
investment
Private inv.
Public inv.
Capital flight

23. High levels of perceived corruption in business
Gallup 2009-11 PEW, 2011

24. Identification of PC firms
1. We identify politically connected businessmen who managed or
owned a firm and, at the same time, controlled influential political
posts in the government or the ruling party (NDP) before 2011.
– Most were ministers or heads of policy committees in the NDP.
– Interviewed banks, lawyers, and anti-corruption activists to double-check list.
2. Identify 104 publicly listed firms for which these PC businessmen
served as CEOs, board members, or major shareholders (>10%).
– Several of the 104 firms are holding companies or investment funds masking large
business conglomerates.
3. Recovering all subsidiaries (up to two tiers), we unambiguously
identify 385 firms that are directly or indirectly controlled by one
of the PC businessmen.

25. The larger net profits of PC firms relative to other large (Orbis)
firms disappeared after the fall of Mubarak on Feb 11, 2011
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2003 2004 2005 2006 2007 2008 2009 2010 2011
5% lnProfits diff 95%
• Implicit test of the quality of our measure of connected firms.
Difference in Profits of connected and non-connected large firms

26. PC firms are larger and have higher profit margins
PC vs. other
establishments
PC vs. other
est., within
2-digit
sector
No. of
Politically
connected
establishments
No. of other
establishments
Ln(Employment) 1.40**
(15.88)
1.02**
(12.39)
436 19,375
Ln(Revenues) 1.61**
(6.46)
1.59**
(6.27)
67 611
Ln(Profits) 1.43**
(1.95)
1.37*
(1.73)
49 239
Ln(Profits/Assets) 1.88**
(3.03)
2.17**
(3.29)
47 236
Within-sector differences, politically connected (of any type) and other firms

27. Coverage of PC and NPC firms by size categories in Orbis
# of employees # of est. % of est. % of jobs # of est. % of est. % of jobs
<20 8 2% 0% 1,375 19% 0%
[20,99] 73 16% 0% 2,571 35% 2%
[100,199] 44 9% 1% 853 12% 2%
[200,999] 186 40% 12% 1,642 22% 12%
>=1,000 158 34% 87% 914 12% 84%
Orbis
PC NPC
Large firms are well distributed among
connected and non connected firms

28. Distribution across sectors
• PC firms are present in half of the sectors:
– Overall: in 155 of 320 (48%) 4-digit ISIC Rev. 4 sectors.
– Manufacturing: in 73 of 126 (58%) 4-digit sectors.
• High concentration of PC firms in several sectors: tourism, real estate,
construction, wholesale & retail trade, mining, finance, business services,
and some manufacturing sectors.
• Exclusive licenses in wholesale & retail trade: several families benefit from
the exclusive right to distribute/sell international brands in Egypt.
– For instance, General Motors, Mercedes, Caterpillar, McDonalds, Costa Café, KFC,
Hardee’s, Samsung, Labanita, Dell, UPS, Pal Zileri suits, etc.
• Vertical integration: PC firms often own subsidiaries providing goods and
services -- possible tunneling of profits through transfer pricing.

29. PC firms are present in many aggregate
economic sectors
Number of…
PC firms PC CEO PC board PC owner PC PE inv
Agriculture 17 2 9 8 6
Mining 12 0 2 2 11
Manufacturing 193 26 81 164 98
Food & beverages 33 1 11 16 11
Textiles & clothing 22 3 14 14 9
Chemicals 15 0 3 10 7
Pharmaceuticals 13 0 4 2 8
Base metals 19 5 7 16 5
Machinery & transport 27 4 10 18 8
Other manufacturing 64 5 18 49 25
Utilities 18 0 2 10 10
Construction 36 8 12 29 15
Services 388 45 119 288 129
Wholesale trade 91 8 22 65 28
Retail trade 25 0 4 18 8
Transport 13 0 2 9 4
Hotels & resturants 43 7 11 35 8
Finance 53 11 29 38 15
Real estate 25 4 11 18 12
Business services 103 7 27 75 44
Travel & tour operators 10 1 2 7 3
Total PC 2-digit sectors 664 73 211 462 244

30. Selected 4-digit sectors with and without PC firms
ISIC Rev4 Description PC firms PC families PC CEO PC board PC owned PC PE inv PC only PE inv # firms 2006 #est>200 empl Age
5510 Short term accommodation activities 35 17 5 8 29 7 5 3,056 129 15.0
4100 Construction of buildings 21 16 4 8 16 10 2 5,385 35 10.8
6201 Computer programming activities 18 11 1 2 14 11 4 157 2 5.5
4773 Other retail sale in specialized stores 16 14 0 3 11 5 4 138,202 12 9.8
6612 Security and commodity contracts brokerage 15 14 1 7 10 3 0 367 0 8.9
6820 Real estate activities on a fee or contract basis 15 16 3 8 10 9 1 2,234 2 6.4
2100 Manufacture of pharmaceuticals 13 10 0 4 2 8 7 189 22 11.4
4663 Wholesale of construction materials, hardware 13 13 0 0 12 4 1 2,933 9 12.1
2220 Manufacture of plastics products 12 13 0 3 8 4 2 2,399 30 9.0
2930 Manufacture of parts for motor vehicles 11 16 2 3 8 4 3 58 1 10.3
3510 Electric power generation, transmission & distribution10 4 0 1 7 3 3 348 29 19.0
6810 Real estate activities with own or leased property 10 19 1 3 8 3 1 1,338 0 7.5
910 Support activities for petroleum & natural gas extract 9 8 0 2 1 8 6 33 3 10.0
2394 Manufacture of cement, lime and plaster 8 10 1 2 7 4 0 68 10 14.3
1410 Manufacture of wearing apparel, except fur apparel 7 3 2 2 5 4 0 57,214 103 12.1
2410 Manufacture of basic iron and steel 7 3 2 3 7 1 0 454 17 13.3
4530 Sale of motor vehicle parts and accessories 7 3 1 3 7 1 0 31,131 1 10.4
1020 Processing and preserving of fish 0 0 0 0 0 0 0 329 3 14.2
1622 Manufacture of builders' carpentry 0 0 0 0 0 0 0 18,825 1 10.0
1629 Manufacture of other products of wood 0 0 0 0 0 0 0 4,570 3 11.0
1701 Manufacture of pulp, paper and paperboard 0 0 0 0 0 0 0 992 9 13.5
2211 Manufacture of rubber tyres and tubes 0 0 0 0 0 0 0 168 1 12.6
2593 Manufacture of cutlery, hand tools & hardware 0 0 0 0 0 0 0 13,599 0 11.8
2670 Manufacture of optical instruments 0 0 0 0 0 0 0 215 0 9.2
2750 Manufacture of domestic appliances 0 0 0 0 0 0 0 391 27 10.7
2821 Manufacture of agricultural machinery 0 0 0 0 0 0 0 175 1 14.4
3100 Manufacture of furniture 0 0 0 0 0 0 0 88,829 14 10.1
4741 Retail sale of computers, software in stores 0 0 0 0 0 0 0 18,066 1 4.5
4772 Retail sale of pharmaceuticals 0 0 0 0 0 0 0 50,566 1 9.0
5210 Warehousing and storage 0 0 0 0 0 0 0 41,356 12 11.3
6110 Wired telecommunications activities 0 0 0 0 0 0 0 41,904 14 4.7
6920 Accounting, bookkeeping and auditing activities 0 0 0 0 0 0 0 3,888 2 10.1
7410 Specialized design activities 0 0 0 0 0 0 0 875 8.1
8110 Combined facilities support services 0 0 0 0 0 0 0 341 4 8.3

31. Classification of manufacturing industries by
energy intensity
Intensity of energy
consumption
Industry
High Energy Intensity Manufacture of textiles, Paper and paper products, Coke and refined petroleum products, Chemical products, Non-
metallic mineral products, Manufacture of basic metals.
Moderate Energy Intensity Food products and beverages, Wearing apparel, dressing and dyeing, Manufacture of leather products, Wood and
wood products, Printing and publishing, Rubber and plastic products, Fabricated metal products
Low Energy Intensity Tobacco products, Machinery and equipment n.e.c., Office, accounting and computing machinery, Electrical machinery
and apparatus n.e.c., Radio, TV and communication equipment, Medical, precision and optical instruments, Motor
vehicles, trailers and semi-trailers, Other transport equipment, Furniture and other manufacturing n.e.c., Recycling

32. Are PC firms more likely to operate in sectors
protected from import competition?
• We match data on Non-Tariff Measures (NTMs) at the 6-digit product level
from the World Bank with the Orbis firm data at the 4-digit industry level.
‒ Limit analysis to manufacturing & mining as NTMs mostly for tradable goods: 200
politically connected firms.
‒ Overall, 65% of all 4-digit manufacturing & mining industries and 56% of all Orbis
firms had at least one NTM protection.
• Most NTMs in Egypt in form of legal technical barriers to import (Class B)
including licenses requirements, regulations on distribution, or product-
quality & traceability inspections of embedded materials (rules of origin).
• NTM protection high by international comparison (Malouche et al., 2013):
‒ Out of 43 developing countries in 2010, EGY has the 10th highest frequency of NTMs and
the 8th highest covariance of different NTM classes across industries.

33. Non tariff measure classification
B140: Authorization requirement: importer
must receive authorization, permits
or approval from a relevant government
agency for reasons such as national security,
environment protection, etc. Example:
Imports must be authorized for drugs, waste
and scrap, and firearms, etc.
B840 Inspection requirement: Requirement
for product inspection performed by public or
private entities. Example: Textile and clothing
imports must be inspected for size and
materials used before entry is allowed.
B859 Traceability of materials: Disclosure of
information that allows following a product
through the stages of production, processing
and distribution. Example: Manufactures of
automobiles must keep the record of the
origin of the original set of tyres for each
individual vehicle.

34. World Bank Enterprise Survey data
• We use the following policy indicators coded as dummy variables from the WBES:
– Land acquisition from government: “Does your establishment own or lease the majority of its
land? From whom you have got the land (people, government, for free, other)?”
– Industrial zone: “Is the firm located in an industrial zone?”
– Bank loan: “Does your establishment currently have a loan from a financial institution?”
– Waiting time for construction permits: “What was the actual wait duration (from the day you
applied to the day you received the service or approval)?”
– The Coefficient of variation in the waiting time for construction permits.
1. We pool information on perceived policies from Egypt’s various World Bank
Enterprise surveys between 2004 and 2008.
– These include in total over 4,200 different firms.
– WBES data cover only firms with at least 5 employees.
2. We aggregate perceptions by sector, at the 4-digit (ISIC Rev. 3.1) level.
– Consider only sectors with information for at least 10 firms.
– On average, each 4-digit sector has 66 firms.
3. We merge aggregated WBES data with PC firms at the 4-digit sector level (87
manufacturing sectors).

35. Distribution of politically connected
manufacturing firms by type in WBES
No. of
politically
connected
firms
No. of 4-digit
sectors with
politically
connected CEOs
No. of 4-digit
sectors with
politically
connected
owners
No. of 4-digit
sectors with any
type of
connected firms
0 55 22 15
1 22 18 16
2 8 12 5
3 2 7 9
[4,5] 0 11 16
[6,10] 0 11 14
[11,20] 0 5 10
[21,35] 0 1 2
Total 87 87 87

36. Firms operating in industries with more connected firms are more likely to
have access to government land, industrial zones, and bank loans
36
• Merge WBES data with list of PC firms at 4-digit industry level (87 industries).
• Probit (𝑃𝑜𝑙𝑖𝑗 dummy if firm i in the 4-digit sector j has access to land, industrial zone, or loan):
𝑃𝑜𝑙𝑖𝑗 = 𝛽 𝐶 𝑐𝑜𝑛𝑛𝑒𝑐𝑡𝑒𝑑𝑗 + 𝛽 𝑥 𝑋𝑖𝑗 + 𝛽𝑠 𝑆 + 𝜀𝑖𝑗
𝑋𝑖𝑗: average age and size; S: 2-digit industry dummies.
Acquired Land from
Government
Located in Industrial City Obtained Bank Loan
CEO Owner Broad CEO Owner Broad CEO Owner Broad
No. of PC firms -.007 .021* .015* .068 .041** .034** .139* .032** .019**
(-0.11) (1.79) (1.75) (0.73) (2.32) (2.01) (1.74) (2.54) (2.21)
ln(empl) .337** .338** .337** .269** .271** .269** .195** .197** .195**
(16.4) (16.2) (16.1) (6.46) (6.50) (6.34) (9.32) (9.34) (9.29)
Age -.019** -.018** -.018** -.034** -.034** -.034** -.005** -.005** -.005**
(-8.93) (-8.90) (-8.91) (-8.84) (-8.84) (-9.04) (-2.66) (-2.64) (-2.66)
No. of obs 3,015 3,015 3,015 3,009 3,009 3,009 3,003 3,003 3,003
Sector dummies Yes Yes Yes Yes Yes Yes Yes Yes Yes
R-squared 0.193 0.194 0.194 0.187 0.189 0.191 0.070 0.071 0.070
Political connections and firms’ access to land, industrial zones, and credit

37. Politically connected firms have access to fast-track regulations
37
• Firms in connected sectors wait 86 days less for construction permit.
• At the same time, the variation in waiting time across firms in connected sectors is
higher suggesting that some firms in connected sectors have access to fast-track
regulatory services.
Waiting days for
Construction Permit
CoV (Construction Permit)
CEO Owner Broad CEO Owner Broad
No. of PC firms -40.9** -6.00** -4.13** .193** .037** .023
(-2.58) (-2.77) (-2.93) (2.65) (2.36) (1.52)
ln(empl) 3.11 2.77 3.19 .001 .001 .001
(0.82) (0.74) (0.86) (1.03) (1.31) (1.15)
Age 1.52** 1.56** 1.58** -.013 -.014 -.014
(2.57) (2.64) (2.65) (-0.97) (-1.06) (-1.03)
No. of firms / sectors 986 986 986 63 63 63
Sector dummies Yes Yes Yes Yes Yes Yes
R-squared 0.081 0.076 0.075 0.466 0.468 0.453
Political connections and variations in regulatory enforcement across firms

38. Entry of connected firms from 1997-2006 into
initially unconnected sectors
Sector name 2-digit ISIC Rev. 3.14-digit Sector name 4-digit
Other mining and quarrying 1410 Quarrying of stone, sand & clay
1429 Other mining & quarrying n.e.c.
Manufacture of food products & beverages 1551 Distilling, rectifying, blending of spirits
1552 Manufacture of wines
1553 Manufacture of malt liquors & malt
1554 Manufacture of soft drinks & mineral water
Manufacture of chemicals & chemical products 2412 Manufacture of fertilizers
Manufacture of basic metals 2720 Manufacture of basic precious metals
Manufacture of electrical machinery 3140 Manufacture of primary cells & batteries
Manufacture of radio, TV & communication equ. 3230 Manufacture of television & radio receivers
Manufacture of furniture 3691 Manufacture of jewellery & related articles
Recycling 3710 Recycling of metal waste and scrap
3720 Recycling of non-metal waste and scrap
Electricity, gas, steam and hot water supply 4010 Electricity production, transmission & distribution
4020 Manufacture & distribution of gas
Collection, purification and distribution of water 4100 Collection, purification & distribution of water
Wholesale trade and commission trade 5131 Wholesale of textiles, clothing & footwear
5141 Wholesale of solid, liquid & gaseous fuels
5152 Wholesale of electronic & telecommunications parts
Retail trade 5211 Retail sale in non-specialized stores with food
Water transport 6120 Inland water transport
Insurance and pension funding 6601 Life insurance
Renting of machinery and equipment 7111 Renting of land transport equipment
Other business activities 7411 Legal activities
7430 Advertising

39. Firm census data reveal stagnant firm dynamics
and job creation in Egypt
Younger medium or large
firms missing
Egypt Turkey
• In Egypt, there is a lack of young growing firms that could put domestic
competitive pressure on the few large firms which do not create enough jobs.

40. Jobs or Privileges
Unleashing the Employment
Potential of the Middle East
and North Africa
http://www.worldbank.org/en/region/mena/pu
blication/jobs-or-privileges-unleashing-the-
employment-potential-of-the-middle-east-and-
north-africa