What is the Cost of Political Instability in Tunisia? Evidence from 592 Private Firms

Abstract

Using detailed firm-level data covering 592 firms in the private sector in Tunisia covering the period 2009-2012, this paper (i) examines the relationship between firm characteristics and their perception of the effect of political instability on their business 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) larger-sized firms are more likely to report political instability as a sever obstacle to their operations. Using OLS and an endogenous treatment linear regression models, we find that (ii) 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.