This research suggests that several middle-income countries may face a critical choice in their quest for higher growth and more jobs: promote competition, equal opportunities for all entrepreneurs and dismantle existing privileges to specific firms, or risk perpetuating the current path of modest growth, high inequality, and low job creation. It shows that policies that create an uneven playing field across firms constrain private sector growth. These policies take different forms across countries and sectors but share common features: they limit free entry in the domestic market, exclude firms from government programs, and increase regulatory burden and uncertainty for the majority of firms. The work is primarily based on firm census data and information on first tier politically connected firms in Egypt. While previous research has shown that political connections are lucrative, this work aims to provide quantitative evidence on the microeconomic transmission mechanism from political connections to policies limiting productivity growth. Such policies are often captured by a few privileged firms and persist despite their apparent cost to society. The millions of workers, consumers, and the majority of entrepreneurs who bear the brunt of that cost are often unaware of the adverse impact of these policies on the economic opportunities to which they aspire. This limits the scope for critical internal debate and curtails the policy dialogue necessary for reform.
Wednesday, February 23, 2022, 5:30 pm – 7:00 pm