time period.<sup>44</sup> We use these data to compare the average growth rate of value added among countries in other regions between 1996 and 2006 of the “treatment” group sectors – (4-digit manufacturing sectors that politically connected firms in Egypt entered after 1996 that were previously unconnected) with the average growth rate among these other countries of the “control” group sectors (4-digit manufacturing sectors that remained unconnected).

Table 10 shows that value added growth was, in fact, higher among all different country groups for the treatment group sectors. In addition, the difference in the average annual growth rates between the treatment and control group sectors is significant at conventional levels when using data for all countries, for all high income countries (which have the least market distortions), for all developing countries, and for all countries in Eastern Europe and Central Asia.

These findings suggest that our identifying assumption in Table 9, i.e., that connected firms did not enter new sectors with a lower growth potential, when estimating the impact of politically connected firm entry on aggregate sector growth is not violated. If anything, new sectors entered by connected firms in Egypt after 1996 appear to have had a higher growth potential, on average, than sectors that remained unconnected. This implies a bias against our findings since we nevertheless find that the actual growth rate after the entry of politically connected firms into these sectors was lower in Egypt. Our estimates are therefore likely to be a lower bound on the negative effects of political connections on employment growth in Egypt.

**Table 11: Average annual growth rates (in percentage) of treatment and control group manufacturing and service sectors in Jordan between 1996 and 2006**

||**Value**<br>**Added**|**Investment**<br>**(in log**<br>**levels)**|<br>**Wages**|**Profits**|
|---|---|---|---|---|
|**Unconnected sectors in 1996 subsequently**<br>**entered by politically connected firms in**|0.79|6.94|0.79|1.49|
|**Egypt**|||||
|**Unconnected sectors in 1996 that remained**<br>**unconnected in Egypt **|1.17|5.44|0.85|1.56|
|**Difference**|-0.38|1.50**|-0.06|-0.07|

Source: Department of Statistics Jordan and sample of politically connected firms in Egypt. Note: We use the broadest measure of political connections (see Table 1). We observe 13 new manufacturing and non-government service sectors entered by politically connected firms after 1996 and 44 sectors that remained unconnected. The 4-digit new (previously unconnected) sectors entered by politically connected firms after 1996 are listed in Table A4; data for Jordan in this period are not available for _Other mining & quarrying_ , _Manufactures of whines_ , _Manufacture of malt liquors_ , _Manufacture of batteries_ , _Manufacture of television & radio receivers_ , _Recycling of metal or non-metal waste_ , _Collection, purification & distribution of water_ , _Wholesale of telecommunications parts_ , _Inland water transport_ , _Life insurance_ . *, ** denote that the difference in annual growth rates between the treat and control group sectors is significance at the 10%, 5% significance level (after controlling for 1-digit sector dummies).

The results in Table 10 offer a compelling defense of our identification assumption, but the data exclude services. However, we were able to collect data for several 4-digit manufacturing and service sectors in Jordan between 1996 and 2006, and for a wider variety of sector performance

> 44 We did not find data for service sectors at the 4-digit sector level between 1996 and 2006. The exception is Jordan, which provides these data for several service sectors (see below).

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