Cronyism and Partial Liberalization in Mubarak’s Egypt

• In Event: Business and the State in Developing Economies

Abstract

This paper provides one of the first systematic empirical assessments of the impact of political connections on trade protection. To do this, we exploit a major episode of trade liberalization in Egypt that was triggered by an EU Association Agreement in 2004, which resulted in an across-the-board reduction of tariff barriers and a subsequent increase in non-tariff measures (NTMs). Leveraging this relatively exogenous EU-induced trade policy shock and combining it with a unique compilation of sector-level data on NTMs and politically connected businessmen in Mubarak-era Egypt, our difference-in-differences regression analysis shows that sectors with prior exposure to politically connected businesses witnessed a systematically higher introduction of NTMs in the aftermath of the EU Agreement. Our results indicate that political cronies were primarily compensated through technical barriers to trade that require administrative oversight and are more susceptible to political abuse.

Author

• Ferdinand Eibl, King's College London