Explanation:
The effect is to slow down economic development by lowering or eliminating competition in various economic activities and the labour market, preventing the best businesses to operate and expand.
I don’t know of any quantitative studies on the effect of nepotism (which is quite hard to measure) but its first order impact must be same as other regular economic policies that prevent or lower competition in an economy — like restrictive licensing regime allowing only a few firms to operate in a sector or labour market discrimination.
Such policies and nepotism prevent various factors of production, land, labour and capital from flowing to the firms or entrepreneurs who can use them most efficiently to produce maximum possible value. Instead they find their way to the best politically connected businesses. Or the best connected people get jobs.
