The gradual opening of the Israeli economy to the rest of the world during the 1990s, occasioned by globalization and the liberalization of capital flows, gave Israel’s large firms more ways of financing their activities. This study asks whether this process decreased the market power of domestic banks vis-à-vis these firms, as reflected in the price that the firms paid for non-indexed NIS (domestic-currency) credit from the banking system, and asks which firms gained the greatest benefit from this process. The database that we used contains unique information about the entire set of industrial firms that are traded on the Tel Aviv Stock Exchange, including the interest rates that they paid for bank credit in 1993–2000 and information about their relations with the banks that lent to them. The main finding is that the firms as a class paid less for credit during the decade but some benefited more than others: those that maintained close relations with domestic banks, i.e., those that did most of their borrowing from a small number of banks or had long-term relations with them, and those oriented to domestic activity, i.e., that did little exporting.

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