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Financial Development, Bank Ownership, and Growth: Or, Does Quantity Imply Quality?

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  • Shawn Cole

    (Harvard Business School)

Abstract

In 1980, India nationalized its large private banks. This induced different bank ownership patterns across different towns, allowing credible identification of the effects of bank ownership on financial development, lending rates, and the quality of intermediation, as well as employment and investment. Credit markets with nationalized banks experienced faster credit growth during a period of financial repression. Nationalization led to lower interest rates and lower-quality intermediation, and may have slowed employment gains in trade and services. Development lending goals were met, but these had no impact on the real economy. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Shawn Cole, 2009. "Financial Development, Bank Ownership, and Growth: Or, Does Quantity Imply Quality?," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 33-51, February.
    • Handle: RePEc:tpr:restat:v:91:y:2009:i:1:p:33-51
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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