Why don’t Banks Lend to the Private Sector in Egypt?
Why don’t Banks Lend to the Private Sector in Egypt?
By Santiago Herrera, Christophe Hurlin, and Chahir Zaki
World Bank Working Paper Series (2012)
Abstract Paper

Santiago Herrera

World Bank

United States

Coder Page  

Christophe Hurlin

University of Orleans

France

Coder Page  

Chahir Zaki

Cairo University

Egypt

Coder Page  

This Matlab code computes the Maximum Likelihood (ML) estimates of the parameters of a disequilibrium model according to the methodology proposed by Maddala and Nelson (1974) or Quandt (1988). The user provides the dependant variable and the explicative variables of both regimes (supply and demand regimes). The ML estimation is done without any constraint on the parameter (by default) or with positivity constraints on the standard errors of both regimes. For more information about the model used, please download the following pdf file.
Created
May 08, 2012
Software:
Matlab R2008
Visits
112
Last update
October 17, 2013
Ranking
56
Runs
252
Abstract
Bank credit to the private sector fell as a share to GDP during the last decade, in spite of a successful bank recapitalization in the middle of the 2000s and high and stable growth before the recent macroeconomic turmoil. This paper explains this trend based on both bank supply factors and demand for credit from the private sector. First the paper describes the evolution of the banks’ sources and uses of funds in the period 2005-2011, characterized by two different cycles of external capital flows. Then it estimates supply and demand equations of credit to the private sector, using quarterly data for the period 1999-2011. First, the system of simultaneous equations is estimated assuming continuous market clearing. Then the system is estimated allowing for transitory disequilibrium. In general, the main results are robust to the market clearing assumption. Our main findings show that, while real industrial production and the stock market have a significant impact on credit demand, deposits and claims on government affected the supply of credit in Egypt. Finally, both models yield similar results for the most recent period of private credit contraction: the single most important factor explaining the largest share of the decline is the expansion of banking credit to the public sector. The slowdown in economic activity and the contraction of bank deposits explain the remainder of the predicted contraction in bank credit to the private sector.
Herrera, S., C. Hurlin, and C. Zaki, "Why don’t Banks Lend to the Private Sector in Egypt? ", World Bank Working Paper Series.
Explicative variables (supply regime)
Explicative variables (supply regime)
Explicative variables (demand regime)
Explicative variables (demand regime)
Dependent variable
Dependent variable
Estimation method
Estimation method
Waiting time

Please cite the publication as :

Herrera, S., C. Hurlin, and C. Zaki, "Why don’t Banks Lend to the Private Sector in Egypt? ", World Bank Working Paper Series.

Please cite the companion website as :

Herrera, S., C. Hurlin, and C. Zaki, "Why don’t Banks Lend to the Private Sector in Egypt? ", RunMyCode companion website, http://www.execandshare.org/CompanionSite/Site104

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Variable/Parameters Description, constraint Comments
Explicative variables (supply regime)
    This matrix corresponds to the explicative variables of the supply regime. Each explicative variable must be in column, so the number of rows must correspond to the number of rows of the dependent variable. The number of explicative variables in both regimes can be different. The constant is automatically includes in both regimes.
    Explicative variables (demand regime)
      This matrix corresponds to the explicative variables of the demand regime. Each explicative variable must be in column, so the number of rows must correspond to the number of rows of the dependent variable. The number of explicative variables in both regimes can be different. The constant is automatically includes in both regimes.
      Dependent variable
        This vector corresponds to the dependent variable.
        Estimation method
          The default estimation method is Maximum Likelihood (ML). The user can also choose the ML with positivity constraints on the standard error of both regimes.
          Variable/Parameters Description Visualisation
          Explicative variables (supply regime) Regarding the explanatory variables of the supply function, lending rates, real T-bill rates and lending capacities have been compiled from the monthly report of the Central Bank of Egypt.
          Explicative variables (demand regime) The explanatory variables of the demand function are the real lending rates, the industrial production and the stock market index (EGX30) originates from the Egyptian Stock Market. EGX 30 Index is a market capitalization weighted index.
          Dependent variable Credit to private sector comes from the banking survey that is published in the monthly report of the Central Bank of Egypt (CBE). This variable measures the claims on private sector.
          Estimation method The parameters are estimated by ML.
          Why don’t Banks Lend to the Private Sector in Egypt?
          S. Herrera, C. Hurlin, and C. Zaki (2012)
          Computing Date Status Actions
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          Unit Root Tests for Panel Data
          Abstract
          This paper develops unit root tests for panel data. These tests are devised under more general assumptions than the tests previously proposed. First, the number of groups in the panel data is assumed to be either finite or infinite. Second, each group is assumed to have different types of nonstochastic and stochastic components. Third, the time series spans for the groups are assumed to be all different. Fourth, the alternative where some groups have a unit root and others do not can be dealt with by the tests. The tests can also be used for the null of stationarity and for cointegration, once relevant changes are made in the model, hypotheses, assumptions and underlying tests. The main idea for our unit root tests is to combine p-values from a unit root test applied to each group in the panel data. Combining p-values to formulate tests is a common practice in meta-analysis. This paper also reports the finite sample performance of our combination unit root tests and Im et al.'s [Mimeo (1995)] t-bar test. The results show that most of the combination tests are more powerful than the t-bar test in finite samples. Application of the combination unit root tests to the post-Bretton Woods US real exchange rate data provides some evidence in favor of the PPP hypothesis.
          Hurlin, C., "Unit Root Tests for Panel Data", Journal of International Money and Finance, 20, 249-272.
          Authors: Choi
          Coders: Hurlin
          Last update
          10/08/2012
          Ranking
          60
          Runs
          62
          Visits
          261
          Testing for Unit Roots in Heterogeneous Panels
          Abstract
          This paper proposes unit root tests for dynamic heterogeneous panels based on the mean of individual unit root statistics. In particular it proposes a standardized t-bar test statistic based on the (augmented) Dickey–Fuller statistics averaged across the groups. Under a general setting this statistic is shown to converge in probability to a standard normal variate sequentially with T (the time series dimension) →∞, followed by N (the cross sectional dimension) →∞. A diagonal convergence result with T and N→∞ while N/T→k,k being a finite non-negative constant, is also conjectured. In the special case where errors in individual Dickey–Fuller (DF) regressions are serially uncorrelated a modified version of the standardized t-bar statistic is shown to be distributed as standard normal as N→∞ for a fixed T, so long as T>5 in the case of DF regressions with intercepts and T>6 in the case of DF regressions with intercepts and linear time trends. An exact fixed N and T test is also developed using the simple average of the DF statistics. Monte Carlo results show that if a large enough lag order is selected for the underlying ADF regressions, then the small sample performances of the t-bar test is reasonably satisfactory and generally better than the test proposed by Levin and Lin (Unpublished manuscript, University of California, San Diego, 1993).
          Hurlin, C., "Testing for Unit Roots in Heterogeneous Panels ", Journal of Econometrics, 115, 53-74.
          Authors: Im
          Pesaran
          Shin
          Coders: Hurlin
          Last update
          10/08/2012
          Ranking
          61
          Runs
          57
          Visits
          106
          Testing for a Unit Root in Panels with Dynamic Factors
          Abstract
          This paper studies testing for a unit root for large n and T panels in which the cross-sectional units are correlated. To model this cross-sectional correlation, we assume that the data are generated by an unknown number of unobservable common factors. We propose unit root tests in this environment and derive their (Gaussian) asymptotic distribution under the null hypothesis of a unit root and local alternatives. We show that these tests have significant asymptotic power when the model has no incidental trends. However, when there are incidental trends in the model and it is necessary to remove heterogeneous deterministic components, we show that these tests have no power against the same local alternatives. Through Monte Carlo simulations, we provide evidence on the finite sample properties of these new tests.
          Hurlin, C., "Testing for a Unit Root in Panels with Dynamic Factors", Journal of Econometrics, 122, 81-126.
          Authors: Moon
          Perron
          Coders: Hurlin
          Last update
          10/08/2012
          Ranking
          62
          Runs
          399
          Visits
          124
          Determining the Number of Factors in Approximate Factors Models
          Abstract
          In this paper we develop some econometric theory for factor models of large dimensions. The focus is the determination of the number of factors (r), which is an unresolved issue in the rapidly growing literature on multifactor models. We first establish the convergence rate for the factor estimates that will allow for consistent estimation of r. We then propose some panel criteria and show that the number of factors can be consistently estimated using the criteria. The theory is developed under the framework of large cross-sections (N) and large time dimensions (T). No restriction is imposed on the relation between N and T. Simulations show that the proposed criteria have good finite sample properties in many configurations of the panel data encountered in practice.
          Hurlin, C., "Determining the Number of Factors in Approximate Factors Models", Econometrica, 70, 191-221.
          Authors: Bai
          Ng
          Coders: Hurlin
          Last update
          01/29/2013
          Ranking
          39
          Runs
          66
          Visits
          230
          Maximum Likelihood Methods for Models of Markets in Disequilibrium
          Abstract
          For the abstract, please click on: http://www.jstor.org/discover/10.2307/1914215?uid=3738016&uid=2&uid=4&sid=56146953873
          Hurlin, C., "Maximum Likelihood Methods for Models of Markets in Disequilibrium", Econometrica, 42, 1013-1030.
          Authors: Maddala
          Nelson
          Coders: Hurlin
          Last update
          02/15/2013
          Ranking
          50
          Runs
          85
          Visits
          391
          Are Public Investment Efficient in Creating Capital Stocks in Developing Countries? Estimates of Government Net Capital Stocks for 26 Developing Countries, 1970-2002
          Abstract
          In many poor countries, the problem is not that governments do not invest, but that these investments do not create productive capital. So, the cost of public investments does not correspond to the value of the capital stocks. In this paper, we propose an original non parametric approach to evaluate the efficiency function that links variations (net of depreciation) of stocks to public investments. We consider four sectors (electricity, telecommunications, roads and railways) of two Latin American countries (Mexico and Colombia). We show that there is a large discrepancy between the amount of investments and the value of increases in stocks.
          Arestoff, F., and C. Hurlin, "Are Public Investment Efficient in Creating Capital Stocks in Developing Countries? Estimates of Government Net Capital Stocks for 26 Developing Countries, 1970-2002 ", Economics Bulletin, 30, 1515-1531.
          Authors: Arestoff
          Hurlin
          Coders: Arestoff
          Hurlin
          Last update
          10/08/2012
          Ranking
          11
          Runs
          N.A.
          Visits
          26

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          Are Public Investment Efficient in Creating Capital Stocks in Developing Countries? Estimates of Government Net Capital Stocks for 26 Developing Countries, 1970-2002
          Abstract
          We provide various estimates of the government net capital stocks for a panel of 26 developing countries over the period 1970-2001. These internationally comparable series of public capital are proposed as a complementary solution to the use of public investment flows and to the use of physical measures of infrastructure when one comes to evaluate the productivity of the public capital formation in developing countries. In these estimates based on various assumptions, we attempt to take into account the potential inefficiency of public investment in creating capital.
          Arestoff, F., and C. Hurlin, "Are Public Investment Efficient in Creating Capital Stocks in Developing Countries? Estimates of Government Net Capital Stocks for 26 Developing Countries, 1970-2002", Economics Bulletin, 30, 1-11.
          Authors: Arestoff
          Hurlin
          Coders: Arestoff
          Hurlin
          Last update
          07/23/2012
          Ranking
          46
          Runs
          2
          Visits
          49
          A Simple Empirical Measure of Central Banks' Conservatism
          Abstract
          In this paper we suggest a simple empirical and model-independent measure of Central Banks' Conservatism, based on the Taylor curve. This new indicator can easily be extended in time and space, whatever the underlying monetary regime of the considered countries. We demonstrate that it evolves in accordance with the monetary experiences of 32 OECD member countries from 1980, and is largely equivalent to the model-based measure provided by Krause & Méndez [Southern Economic Journal, 2005]. We finally bring forward the interest of such an indicator for further empirical analysis dealing with the preferences of Central Banks.
          Levieuge, G., "A Simple Empirical Measure of Central Banks' Conservatism", SSRN.
          Authors: Levieuge
          Lucotte
          Coders: Levieuge
          Last update
          07/23/2012
          Ranking
          47
          Runs
          6
          Visits
          76
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