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Is Government Ownership of Banks Really Harmful to Growth?

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  • Svetlana Andrianova
  • Panicos Demetriades
  • Anja Shortland

Abstract

We put forward a modern version of the 'developmental' view of government-owned banks which shows that the combination of information asymmetries and weak institutions creates scope for such banks to play a growth-promoting role. We present new cross-country evidence consistent with our theoretical predictions. Specifically, we show that during 1995-2007 government ownership of banks has been robustly associated with higher long run growth rates. Moreover, we show that previous results suggesting that government ownership of banks is associated with lower long run growth rates are not robust to conditioning on more 'fundamental' determinants of economic growth.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.354939.de/dp987.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 987.

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Length: 39 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp987

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Keywords: Public banks; economic growth; quality of governance; regulation;

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References

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  1. Delano Villanueva & Abbas Mirakhor, 1990. "Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 509-536, September.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What do nationalized banks do?
    by chris dillow in Stumbling and Mumbling on 2010-05-28 12:47:51
  2. Regulation vs nationalization
    by chris dillow in Stumbling and Mumbling on 2009-07-08 13:13:51
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Cited by:
  1. Körner, Tobias & Schnabel, Isabel, 2010. "Public Ownership of Banks and Economic Growth - The Role of Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8138, C.E.P.R. Discussion Papers.
  2. Gelb, Alan & Tordo, Silvana & Halland, Havard & Arfaa, Noora & Smith, Gregory, 2014. "Sovereign wealth funds and long-term development finance : risks and opportunities," Policy Research Working Paper Series 6776, The World Bank.
  3. 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.
  4. Jesus Gonzalez-Garcia & Francesco Grigoli, 2013. "State-Owned Banks and Fiscal Discipline," IMF Working Papers, International Monetary Fund 13/206, International Monetary Fund.
  5. Andrei Vernikov, 2011. "Government Banking in Russia: Magnitude and New Features," IWH Discussion Papers, Halle Institute for Economic Research 13, Halle Institute for Economic Research.
  6. Xiao, Sheng & Zhao, Shan, 2012. "Financial development, government ownership of banks and firm innovation," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(4), pages 880-906.
  7. Brei, Michael & Schclarek, Alfredo, 2013. "Public bank lending in times of crisis," Journal of Financial Stability, Elsevier, Elsevier, vol. 9(4), pages 820-830.

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