Political Connections Reduce Job Creation: Firm-level Evidence from Lebanon

Diwan, Ishac and Haidar, Jamal Ibrahim (2020): Political Connections Reduce Job Creation: Firm-level Evidence from Lebanon. Published in: Journal of Development Studies , Vol. 8, No. 57 (1 August 2021): pp. 1373-1396.

Abstract

Using firm-level data, we document that politically connected firms (PCFs) create more jobs than unconnected firms in Lebanon. We observe, however, that the presence of PCFs in a sector is correlated with lower job creation. Although causality is difficult to establish due to endogeneity issues, we find that PCFs expand, and non-PCFs retract, more around elections. Our findings are consistent with the hypothesis that unfair competition by PCFs hurts unconnected competitors so much that aggregate employment growth in the sector is affected negatively.

• Item Type: MPRA Paper
• Language: English
• Keywords: job creation; political connections; event study; competition
• Subjects: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D47 - Market Design; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J20 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy; J - Labor and Demographic Economics > J4 - Particular Labor Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; L - Industrial Organization > L5 - Regulation and Industrial Policy > L50 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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