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Public Ownership of Banks and Economic Growth - The Role of Heterogeneity

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  • Körner, Tobias
  • Schnabel, Isabel

Abstract

In an influential paper, La Porta, Lopez-De-Silanes and Shleifer (2002) argued that public ownership of banks is associated with lower GDP growth. We show that this relationship does not hold for all countries, but depends on a country’s financial development and political institutions. Public ownership is harmful only if a country has low financial development and low institutional quality. The negative impact of public ownership on growth fades quickly as the financial and political system develops. In highly developed countries, we find no or even positive effects. Policy conclusions for individual countries are likely to be misleading if such heterogeneity is ignored.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8138.

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Date of creation: Dec 2010
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Handle: RePEc:cpr:ceprdp:8138

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Related research

Keywords: Economic growth; Financial development; Political institutions; Public banks; Quality of governance;

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References

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  1. Hendrik Hakenes & Isabel Schnabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_11, Max Planck Institute for Research on Collective Goods.
  2. Randall Filer & Dana Hajkova & Jan Hanousek, 2007. "A Rise by Any Other Name? Sensitivity of Growth Regressions to Data Source," CESifo Working Paper Series 2064, CESifo Group Munich.
  3. Hainz, Christa & Hakenes, Hendrik, 2007. "The Politician and his Banker," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 222, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
  5. Minier, Jenny A, 1998. " Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-66, September.
  6. Daniel Cohen & Marcelo Soto, 2001. "Growth and Human Capital: Good Data, Good Results," OECD Development Centre Working Papers 179, OECD Publishing.
  7. Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2009. "Is Government Ownership of Banks Really Harmful to Growth?," CEDI Discussion Paper Series 09-05, Centre for Economic Development and Institutions(CEDI), Brunel University.
  8. Alejandro Micco & Ugo Panizza & Monica Yañez, 2005. "Bank Ownership and Performance Does Politics Matter?," Working Papers Central Bank of Chile 356, Central Bank of Chile.
  9. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
  10. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Andrianova, Svetlana, 2012. "Public banks and financial stability," Economics Letters, Elsevier, vol. 116(1), pages 86-88.
  2. Gutierrez, Eva & Rudolph, Heinz P. & Homa, Theodore & Beneit, Enrique Blanco, 2011. "Development banks : role and mechanisms to increase their efficiency," Policy Research Working Paper Series 5729, The World Bank.
  3. Farazi, Subika & Feyen, Erik & Rocha, Roberto, 2011. "Bank ownership and performance in the Middle East and North Africa region," Policy Research Working Paper Series 5620, The World Bank.

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