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

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  • Tobias Körner

    (Ruhr Graduate School in Economics)

  • Isabel Schnabel

    ()
    (University of Mainz, CEPR, and MPI Bonn)

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 Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_41.

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Date of creation: Sep 2010
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Handle: RePEc:mpg:wpaper:2010_41

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Keywords: Public banks; economic growth; financial development; quality of governance; political institutions;

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  1. Hanousek, Jan & Hajkova, Dana & Filer, Randall K., 2008. "A rise by any other name? Sensitivity of growth regressions to data source," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1188-1206, September.
  2. Micco, Alejandro & Panizza, Ugo & Yañez, Monica, 2006. "Bank Ownership and Performance Does Politics Matter?," POLIS Working Papers 62, Institute of Public Policy and Public Choice - POLIS.
  3. 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.
  4. 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.
  5. Cohen, Daniel & Soto, Marcelo, 2001. "Growth and Human Capital: Good Data, Good Results," CEPR Discussion Papers 3025, C.E.P.R. Discussion Papers.
  6. Christa Hainz & Hendrik Hakenes, 2007. "The Politician and his Banker," CESifo Working Paper Series 2153, CESifo Group Munich.
  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. Minier, Jenny A, 1998. " Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-66, September.
  9. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
  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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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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