Using an original database of firms in Egypt, we explore the economic effects of
cronyism. The unique dataset identifies 469 politically connected firms under the Mubarak regime in
Egypt before the 2011 revolution. We combine this data with various other databases on Egyptian
economic establishments and regulations to assess the relationship between political connections
and private sector regulation as well as the effect of these on firm dynamics and ultimately job
creation. We find that connected firms are more likely to benefit from trade protection, energy
subsidies, access to land, and regulatory enforcement. Moreover, while connected firms exhibit
superior corporate performance relative to unconnected firms, we show that their performance is
systematically related to their ability to capture these policies. We also find abundant indirect
evidence that the presence of more connected firms in a sector has adverse effects on aggregate
growth. First, it is associated with less competition and less firm entry. Second, it increases the
skewness in the firm size distribution due a decline in the number of medium or large firms and an
increase in the number of small or micro firms. Third, we find that employment growth declines
after politically connected firms enter into initially unconnected sectors. These findings are
consistent with the model of Aghion et al. (2001) which shows that less neck-on-neck competition
within sectors leads to lower growth.