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

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.