Political stability, firm characteristics and performance : evidence from 6,083 private firms in the Middle East

Abstract EN

Using firm-level data from an EBRD/EIB/WB joint survey covering more than 6,000 private firms in 8 countries in the Middle East and North Africa, this paper (i) examines the relationship between firm characteristics and their perception of the effect of political instability on their operations, and (ii) tests whether political instability has had a negative effect on firm performance.

Using ordered and binary probit/logit models, we find that (i) export-oriented and larger-sized firms are less likely to report political instability as a sever obstacle to their operations.

Using OLS and an endogenous treatment linear regression models, we find that the perception of political instability is negatively associated with firm performance, and after correcting for endogeneity it can even have a negative causal effect on firms’ sales and employment growth, all else held constant.

Results are largely robust to different specifications and econometric methods.