**Table 4: Politically connected firms are more likely to benefit disproportionately from NTMs the larger the number of NTMs in the product category**

|**NTMs(class B)**|**Shar**<br>**Con**<br>**CEO**|**e of Politi**<br>**nected FI**<br>**Owner**|**cally**<br>**RMS**<br>**Broad**|**Share all**<br>**firms**|**Sha**<br>**Conne**<br>**CEO**|**re of Politi**<br>**cted PRO**<br>**Owner**|**cally**<br>**DUCTS**<br>**Broad**|**Share of**<br>**NON-PC**<br>**Products**|
|---|---|---|---|---|---|---|---|---|
|at least 1 per|89%*|78%**|82%**||69%|74%**|76%**||
|industry|(0.073)|(0.000)|(0.000)|56%|(0.230)|(0.027)|(0.008)|55%|
|at least 2 per|89%*|78%**|82%**||69%|74%**|76%**||
|industry|(0.073)|(0.000)|(0.000)|27%|(0.174)|(0.012)|(0.003)|52%|
|at least 3 per|67%**|66%**|71%**||50%|60%**|59%**||
|industry|(0.029)|(0.000)|(0.000)|4%|(0.390)|(0.016)|(0.010)|38%|
|at least 4 per|11%|21%**|26%**||13%|23%**|22%**||
|industry|(0.490)|(0.000)|(0.000)|3%|(0.29)|(0.01)|(0.010)|7%|
|at least 5 per|0%|11%**|18%**||13%|14%*|15%**||
|industry|(0.575)|(0.028)|(0.000)|3%|(0.29)|(0.09)|(0.053)|5%|

Source is WITS; establishment census data; sample of politically connected firms. Note: The significance level (p-values) for the statistical difference between politically connected firms or industries (columns 1-3 and 5-7) relative to all firms or industries (columns 4 and 8) is reported in parentheses; it is based on a Pearson Chi2-test. We use the Fisher-test because of small samples to test for the significance in differences between PC and NOT-PC industries (and firms also managed by a connected CEO) for all comparisons with fewer than 5 NTMs per industry. *, ** indicates that the coefficients are significant at the 10%, 5% level, respectively.

# **Politically connected firms and energy subsidies**

In 2010, subsidies to energy-intensive sectors accounted for 2.9 percent of Egyptian GDP or USD 7.4 billion. Connected firms disproportionately benefited from these. Based on the UN classification of the average energy intensity of different sectors, politically connected firms appear to be concentrated in energy- (and capital-) intensive manufacturing industries, such as base metals, cement, plastics, textiles, and ceramics (see Table A2 in the Appendix for the UN classification of sector energy intensity and Table A1 for the sector distribution of politically connected firms).

The empirical strategy to determine the advantages of politically connected firms with respect to energy subsidies is the same as with NTMs. Each firm is classified according to whether it belongs to a low, moderate, or high energy-intensive sector.<sup>23</sup> We then compare the distribution of politicallyconnected firms and all firms across 4-digit manufacturing industries with different energy intensities.

As with NTMs, we show that connected firms are more likely than unconnected firms to be in high, but not low or moderate, energy-intensive sectors, and that industries with politically connected firms are more likely to be high energy-intensive, but not moderate or low. The first four columns of Table 5 show that politically connected firms are significantly more likely to operate in energy-intensive industries. Of all connected firms (broadly defined), 45 percent operate in energyintensive industries, compared to only eight percent of all firms. The difference is significant at the one percent level and is larger for firms where the politically-connected individual is more closely tied

> 23 High energy-intensive industries account for 22 percent of all mining and manufacturing 4-digit industries, moderate energy-intensive industries for 37 percent, and low energy-intensive for 42 percent.

16