Do Political Connections Reduce Job Creation? Evidence from Lebanon

CID Research Fellow & Graduate Student Working Paper No. 70

Ishac Diwan and Jamal Ibrahim Haidar
June 2016


Using firm-level census data, we determine how politically-connected firms (PCFs) reduce job creation in Lebanon. After observing that large firms account for the bulk of net job creation, we find that PCFs are larger and create more jobs, but are also less productive, than non-PCFs in their sectors. On a net basis, at the sector-level, each additional PCF reduces jobs created by 7.2% and jobs created by non-PCFs by 11.3%. These findings support the notion that politically-connected firms are used for clientelistic purposes in Lebanon, exchanging privileges for jobs that benefit their patrons’ supporters.

Keywords: job creation; politically-connected firms; clientelism; Lebanon

JEL codes: D47; J21; J38; L11; L53

Related media: The Economist