Collateral Regimes and Missing Job Creation in the MENA Region

The Economics Department of the European Investment Bank provides economic analysis and studies to support EIB operations and to help define its positioning, strategy and policy. The Economics Department is a team of 25 economists and staff, under the responsibility of the Director Debora Revoltella.

EIB Working papers allow guest authors to explore particular topics in depth, often relating to the annual EIB Economics Conference publication.

The economies in the Middle East and North Africa have not been able to generate a sufficient number of jobs for a fast growing population. This paper uses data from the MENA Enterprise Survey to investigate the extent to which prevailing collateral practices affect the allocation of credit and firms’ ability to expand and create jobs. Using matched bank-firm data to recover banks’ collateral policies and exploiting data on the location of firms and bank branches, the paper aggregates the estimated collateral policies into branch-weighted indices that represent collateral practices at the local level.

We find that less stringent collateral regimes are conducive to employment growth. Young firms in particular benefit from lower collateral ratios, while a greater willingness to accept movables benefits both young and old firms.

Authors: Frank Betz, EIB / Farshad R. Ravasan, Paris School of Economics

EIB: Publications: Economic Research: Working Papers http://www.eib.org/infocentre/publications/all/economic-research/working-papers.htm

EIB: Publications: Economic Research http://www.eib.org/infocentre/publications/all/economic-research/index.htm

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