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

  • Shawn Cole

    (Harvard Business School)

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.

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 91 (2009)
Issue (Month): 1 (February)
Pages: 33-51

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Handle: RePEc:tpr:restat:v:91:y:2009:i:1:p:33-51
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  8. Robin Burgess & Rohini Pande & Grace Wong, 2005. "Banking for the Poor: Evidence From India," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 268-278, 04/05.
  9. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, 02.
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