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Bank privatization, finance, and growth

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  • Berkowitz, Daniel
  • Hoekstra, Mark
  • Schoors, Koen

Abstract

This paper examines whether privatizing state-owned banks improves finance and economic growth. To do so, we exploit regional banking variations in Russia induced by the idiosyncratic creation of “specialized banks” in the last years of the Soviet Union (1988–91) that were subsequently privatized. Starting in 1999 private banks including surviving spetsbanks emerged as an important source of external finance for private firms and households. We document that the regional concentration of spetsbanks in the early years of the Russian federation is orthogonal to economic fundamentals that are related to growth after the emergence of bank finance. Results indicate that while privatized banking increased lending significantly, it did not increase economic growth. However, privatization did increase growth when banks retained fewer political connections and when regional property rights were better protected, highlighting the importance of both factors.

Suggested Citation

  • Berkowitz, Daniel & Hoekstra, Mark & Schoors, Koen, 2014. "Bank privatization, finance, and growth," Journal of Development Economics, Elsevier, vol. 110(C), pages 93-106.
  • Handle: RePEc:eee:deveco:v:110:y:2014:i:c:p:93-106
    DOI: 10.1016/j.jdeveco.2014.05.005
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    Cited by:

    1. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779 Elsevier.
    2. Çagatay Bircan & Ralph de Haas, 2015. "The Limits of Lending: Banks and Technology Adoption across Russia," CESifo Working Paper Series 5461, CESifo Group Munich.
    3. Simone Auer & Emidio Cocozza & Andrea COlabella, 2016. "The financial systems in Russia and Turkey: recent developments and challenges," Questioni di Economia e Finanza (Occasional Papers) 358, Bank of Italy, Economic Research and International Relations Area.
    4. Libman, Alexander & Obydenkova, Anastassia, 2013. "Communism or communists? Soviet legacies and corruption in transition economies," Economics Letters, Elsevier, vol. 119(1), pages 101-103.
    5. repec:bof:bofitp:urn:nbn:fi:bof-201503111110 is not listed on IDEAS
    6. Jarko Fidrmuc & Zuzana Fungáčová & Laurent Weill, 2015. "Does Bank Liquidity Creation Contribute to Economic Growth? Evidence from Russia," Open Economies Review, Springer, vol. 26(3), pages 479-496, July.
    7. repec:esx:essedp:729 is not listed on IDEAS
    8. Vernikov, Andrei, 2017. "Структурные Или Институциональные Сдвиги? Попытка Измерения На Примере Банковского Сектора
      [Structural change, institutional change and their measurement: The case of banking]
      ," MPRA Paper 79978, University Library of Munich, Germany.
    9. Brown, James R. & Cookson, J Anthony & Heimer, Rawley, 2014. "Legal Institutions, Credit Markets, and Economic Activity," Working Paper 1434, Federal Reserve Bank of Cleveland.
    10. Schoors, Koen & Weill, Laurent, 2017. "Russia's 1999–2000 election cycle and the politics-banking interface," BOFIT Discussion Papers 17/2017, Bank of Finland, Institute for Economies in Transition.
    11. Jha, Chandan Kumar, 2015. "Financial Reforms and Corruption," MPRA Paper 65420, University Library of Munich, Germany.
    12. Carol S. Leonard & Zafar Nazarov & Elena S. Vakulenko, 2016. "The impact of sub-national institutions," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(3), pages 421-446, July.
    13. Vernikov, Andrei & Mamonov, Mikhail, 2017. "Долгосрочное Банковское Кредитование: Какие Банки Им Занимаются И Почему?
      [Which banks and why lend long-term in Russia?]
      ," MPRA Paper 77160, University Library of Munich, Germany.

    More about this item

    Keywords

    Bank privatization; Finance; Growth; Political connections; Property rights; Spetsbanks (specialized banks);

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions

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