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Private banking and crony capitalism in Egypt

Published online by Cambridge University Press:  01 March 2018

Ishac Diwan  and
Marc Schiffbauer
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Abstract

Why do private banks lend preferentially to politically connected firms? Focusing on the case of Egypt during the later years of Mubarak's rule, we identified politically connected firms, and we documented, using the Orbis corporate data on large firms in Egypt, that they received a disproportionate amount of the loans going to the private sector during 2003–11. We then investigated the determinants of their borrowings, and we found evidence that connected firms were more attractive to banks both because they made larger profits, and because they were seen to be implicitly guaranteed by the state against failure. We also found evidence that non-connected firms had a lower demand for loans.

Keywords

Egyptcronyismbanking
Type
Research Article
Information
Business and Politics , Volume 20 , Issue 3 , September 2018 , pp. 390 - 409
Copyright
Copyright © V.K. Aggarwal 2018 and published under exclusive license to Cambridge University Press 

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Footnotes

We would like to thank Philip Keefer, Adeel Malik, Izak Atiyas, Hamouda Chekir, Stijn Claessens, the two referees of this journal, and the participants in the workshop of the Economic Research Forum (Marakesh, 2016) on the Political Economy of Transitions in the Arab world, for their valuable comments and suggestions. Financial support from ERF is gratefully acknowledged. The paper does not reflect the views of the World Bank.

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