Corruption by the politically connected is often blamed for economic ills, particularly in less developed economies. Using a loan-level data set of more than 90,000 firms that represents the universe of corporate lending in Pakistan between 1996 and 2002, we investigate rents to politically connected firms in banking. Classifying a firm as "political" if its director participates in an election, we examine the extent, nature, and economic costs of political rent provision. We find that political firms borrow 45 percent more and have 50 percent higher default rates. Such preferential treatment occurs exclusively in government banks-private banks provide no political favors. Using firm fixed effects and exploiting variation for the same firm across lenders or over time allows for cleaner identification of the political preference result. We also find that political rents increase with the strength of the firm's politician and whether he or his party is in power, and fall with the degree of electoral participation in his constituency. We provide direct evidence against alternative explanations such as socially motivated lending by government banks to politicians. The economy-wide costs of the rents identified are estimated to be 0.3 to 1.9 percent of GDP every year. Copyright (c) 2005 Massachusetts Institute of Technology.

We examine the impact of liquidity shocks by exploiting cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. We show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent. While banks pass their liquidity shocks on to firms, large firms— particularly those with strong business or political ties—completely compensate this loss by additional borrowing through the credit market. Small firms are unable to do so and face large drops in overall borrowing and increased financial distress. (JEL E44, G21, G32, L25)

The pathways by which mammalian Ras proteins induce cortical actin rearrangement and cause cellular transformation are investigated using partial loss of function mutants of Ras and activated and inhibitory forms of various postulated target enzymes for Ras. Efficient transformation by Ras requires activation of other direct effectors in addition to the MAP kinase kinase kinase Raf and is inhibited by inactivation of the PI 3-kinase pathway. Actin rearrangement correlates with the ability of Ras mutants to activate PI 3-kinase. Inhibition of PI 3-kinase activity blocks Ras induction of membrane ruffling, while activated PI 3-kinase is sufficient to induce membrane ruffling, acting through Rac. The ability of activated Ras to stimulate PI 3-kinase in addition to Raf is therefore important in Ras transformation of mammalian cells and essential in Ras-induced cytoskeletal reorganization.

Upon detachment from the extracellular matrix, epithelial cells enter into programmed cell death, a phenomenon known as anoikis, ensuring that they are unable to survive in an inappropriate location. Activated ras oncogenes protect cells from this form of apoptosis. The nature of the survival signals activated by integrin engagement and usurped by oncogenic Ras are unknown: here we show that in both cases phosphoinositide 3‐OH kinase (PI 3‐kinase), but not Raf, mediates this protection, acting through protein kinase B/Akt (PKB/Akt). Constitutively activated PI 3‐kinase or PKB/Akt block anoikis, while inhibition of PI 3‐kinase abrogates protection by Ras, but not PKB/Akt. Inhibition of either PI 3‐kinase or PKB/Akt induces apoptosis in adherent epithelial cells. Attachment of cells to matrix leads to rapid elevation of the levels of PI 3‐kinase lipid products and PKB/Akt activity, both of which remain high in Ras‐transformed cells even in suspension. PI 3‐kinase acting through PKB/Akt is therefore implicated as a key mediator of the aberrant survival of Ras‐transformed epithelial cells in the absence of attachment, and mediates matrix‐induced survival of normal epithelial cells.