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Government Ownership of Banks, Institutions and Economic 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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Suggested Citation

  • Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2012. "Government Ownership of Banks, Institutions and Economic Growth," Economica, London School of Economics and Political Science, vol. 79(315), pages 449-469, July.
  • Handle: RePEc:bla:econom:v:79:y:2012:i:315:p:449-469
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    References listed on IDEAS

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    1. Ronald S. Jarmin & Shawn D. Klimek & Javier Miranda, 2009. "The Role of Retail Chains: National, Regional and Industry Results," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 237-262 National Bureau of Economic Research, Inc.
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    3. Victor Aguirregabiria & Pedro Mira & Hernan Roman, 2007. "An Estimate Dynamic Model of Entry, Exit, and Growth in Oligopoly Retail Markets," American Economic Review, American Economic Association, pages 449-454.
    4. Griffith, Rachel & Harmgart, Heike, 2008. "Supermarkets and Planning Regulation," CEPR Discussion Papers 6713, C.E.P.R. Discussion Papers.
    5. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Product Switching," NBER Working Papers 12293, National Bureau of Economic Research, Inc.
    6. X. Henry Wang & Judy Hsu, 2004. "On the Licensing of Innovations under Strategic Delegation," Economics Bulletin, AccessEcon, pages 1-10.
    7. Tyson, Christopher J., 2008. "Cognitive constraints, contraction consistency, and the satisficing criterion," Journal of Economic Theory, Elsevier, pages 51-70.
    8. Roger R. Betancourt, 2004. "The Economics of Retailing and Distribution," Books, Edward Elgar Publishing, number 3511.
    9. Raffaella Sadun, 2015. "Does Planning Regulation Protect Independent Retailers?," The Review of Economics and Statistics, MIT Press, pages 983-1001.
    10. Rachel Griffith & Heike Harmgart, 2005. "Retail productivity," IFS Working Papers W05/07, Institute for Fiscal Studies.
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    Citations

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    Cited by:

    1. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Panicos O. Demetriades & Peter L. Rousseau & Johan Rewilak, 2017. "Finance, Growth And Fragility," Discussion Papers in Economics 17/13, Department of Economics, University of Leicester.
    3. Bertay, Ata Can & Demirgüç-Kunt, Asli & Huizinga, Harry, 2015. "Bank ownership and credit over the business cycle: Is lending by state banks less procyclical?," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 326-339.
    4. Mamonov, Mikhail & Vernikov, Andrei, 2015. "Bank ownership and cost efficiency in Russia, revisited," BOFIT Discussion Papers 22/2015, Bank of Finland, Institute for Economies in Transition.
    5. Demetriades, Panicos O. & Rousseau, Peter L., 2016. "The changing face of financial development," Economics Letters, Elsevier, pages 87-90.
    6. Stefan Buehler & Simon Wey, 2014. "When Do State-Owned Firms Crowd Out Private Investment?," Journal of Industry, Competition and Trade, Springer, pages 319-330.
    7. Lin, Kun-Li & Doan, Anh Tuan & Doong, Shuh-Chyi, 2016. "Changes in ownership structure and bank efficiency in Asian developing countries: The role of financial freedom," International Review of Economics & Finance, Elsevier, pages 19-34.
    8. Rajeswari Sengupta & Anjali Sharma & Susan Thomas, 2016. "Evolution of the insolvency framework for non-financial firms in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2016-018, Indira Gandhi Institute of Development Research, Mumbai, India.
    9. Ang, James B. & Kumar, Sanjesh, 2014. "Financial development and barriers to the cross-border diffusion of financial innovation," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 43-56.
    10. Andrianova, Svetlana, 2012. "Public banks and financial stability," Economics Letters, Elsevier, pages 86-88.
    11. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
    12. Ugo Panizza, 2013. "Guest Workers: Financial Development and Economic Growth: Known Knowns, Known Unknowns, and Unknown Unknowns," IHEID Working Papers 13-2013, Economics Section, The Graduate Institute of International Studies.
    13. Ayadi, Rym & Arbak, Emrah & De Groen, Willem Pieter, 2013. "Convergence and Integration of Banking Sector Regulations in the Euro-Mediterranean area," CEPS Papers 7853, Centre for European Policy Studies.
    14. repec:bof:bofitp:urn:nbn:fi:bof-201508181357 is not listed on IDEAS
    15. Vernikov, Andrei, 2017. "The impact of state-controlled banks on the Russian banking sector," MPRA Paper 77155, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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