Can banks lead the economic recovery of the Arab Spring ?

Abstract EN

We analyze the role of banks in Bahrain, Egypt, Libya, Tunisia, and Yemen, pre-and postrevolution, and find that the volume of credit they offered to the private sector was neutral to real economic growth.

Supported by a recent IMF study that ranks banking regulation and supervision “poor” or “below- average” in four out of the five countries under study, we attribute the limited effectiveness of their banks to government intervention in credit allocation and pricing.

Our results cast doubt on the banks’ ability to lead an economic recovery, and suggest that monetary policy alone will not be successful within the first three years.