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Do Public Development Banks Hurt Growth? Evidence from Brazil

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  • Monica de Bolle

    () (Peterson Institute for International Economics)

Abstract

Public lending by the Brazilian Development Bank (BNDES) may have done more harm than good in Brazil, adversely affecting real interest rates and productivity growth. Specifically, BNDES's large amounts of subsidized lending are responsible for substantial credit market segmentation, choking off monetary policy transmission. As a result, to maintain price stability the Central Bank of Brazil is forced to raise interest rates more than it might do otherwise in the absence of BNDES lending. Restoring Brazil's capacity to grow in the medium term requires a thorough rethinking of the role of BNDES. In particular, the bank's lending rates should be aligned with market prices, term and risk premia, while taking into account that, with an adequate transparency framework, public development banks can increase private sector participation instead of crowding it out.

Suggested Citation

  • Monica de Bolle, 2015. "Do Public Development Banks Hurt Growth? Evidence from Brazil," Policy Briefs PB15-16, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb15-16
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    References listed on IDEAS

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    1. de Aghion, Beatriz Armendariz, 1999. "Development banking," Journal of Development Economics, Elsevier, vol. 58(1), pages 83-100, February.
    2. João Alberto De Negri & Alessandro Maffioli & Cesar M. Rodriguez & Gonzalo Vázquez, 2011. "The Impact of Public Credit Programs on Brazilian Firms," SPD Working Papers 1103, Inter-American Development Bank, Office of Strategic Planning and Development Effectiveness (SPD).
    3. Alex Segura-Ubiergo, 2012. "The Puzzle of Brazil's High Interest Rates," IMF Working Papers 12/62, International Monetary Fund.
    4. Lazzarini, Sergio G. & Musacchio, Aldo & Bandeira-de-Mello, Rodrigo & Marcon, Rosilene, 2015. "What Do State-Owned Development Banks Do? Evidence from BNDES, 2002–09," World Development, Elsevier, vol. 66(C), pages 237-253.
    5. Tatiana Didier & Ross Levine & Sergio L. Schmukler, 2014. "Capital Market Financing, Firm Growth, Firm Size Distribution," NBER Working Papers 20336, National Bureau of Economic Research, Inc.
    6. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, vol. 14(2), pages 221-250, May.
    7. Marcus Noland, 2004. "Selective Intervention and Growth: The Case of Korea," Chapters,in: Empirical Methods in International Trade, chapter 13 Edward Elgar Publishing.
    8. João Alberto De Negri & Alessandro Maffioli & César Rodríguez & Gonzalo Vázquez, 2011. "The Impact of Public Credit Programs on Brazilian Firms," IDB Publications (Working Papers) 61998, Inter-American Development Bank.
    9. Anjali Kumar & Manuela Francisco, 2005. "Enterprise Size, Financing Patterns, and Credit Constraints in Brazil : Analysis of Data from the Investment Climate Assessment Survey," World Bank Publications, The World Bank, number 7330, июль.
    10. Inoue, Carlos F. K. V. & Lazzarini, Sérgio G. & Musacchio, Aldo, 2012. "Leviathan as a Minority Shareholder: Firm-Level Implications of Equity Purchases by the State," Insper Working Papers wpe_282, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    11. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, September.
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    1. repec:eee:jimfin:v:74:y:2017:i:c:p:31-52 is not listed on IDEAS
    2. repec:kap:asiapa:v:35:y:2018:i:1:d:10.1007_s10490-017-9526-z is not listed on IDEAS
    3. Lage de Sousa, Filipe & Ottaviano, Gianmarco I.P., 2018. "Relaxing credit constraints in emerging economies: The impact of public loans on the productivity of Brazilian manufacturers," International Economics, Elsevier, vol. 154(C), pages 23-47.

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