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Public Ownership of Banks and Economic Growth – The Role of Heterogeneity

  • Tobias Körner

    (Ruhr Graduate School in Economics)

  • Isabel Schnabel


    (University of Mainz, CEPR, and MPI Bonn)

In an influential paper, La Porta, Lopez-De-Silanes and Shleifer (2002) argued that public ownership of banks is associated with lower GDP growth. We show that this relationship does not hold for all countries, but depends on a country’s financial development and political institutions. Public ownership is harmful only if a country has low financial development and low institutional quality. The negative impact of public ownership on growth fades quickly as the financial and political system develops. In highly developed countries, we find no or even positive effects. Policy conclusions for individual countries are likely to be misleading if such heterogeneity is ignored.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_41.

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Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mpg:wpaper:2010_41
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  1. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
  2. Hanousek, Jan & Hajkova, Dana & Filer, Randall K., 2008. "A rise by any other name? Sensitivity of growth regressions to data source," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1188-1206, September.
  3. Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2009. "Is Government Ownership of Banks Really Harmful to Growth?," CEDI Discussion Paper Series 09-05, Centre for Economic Development and Institutions(CEDI), Brunel University.
  4. Hendrik Hakanes & Christa Hainz, 2008. "The Politician and his Banker," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_01, Max Planck Institute for Research on Collective Goods.
  5. Daniel Cohen & Marcelo Soto, 2001. "Growth and Human Capital: Good Data, Good Results," OECD Development Centre Working Papers 179, OECD Publishing.
  6. Alejandro Micco & Ugo Panizza & Monica Yañez, 2005. "Bank Ownership and Performance Does Politics Matter?," Working Papers Central Bank of Chile 356, Central Bank of Chile.
  7. Caprio, Gerard & Honohan, Patrick, 2001. "Finance for Growth: Policy Choices in a Volatile World," MPRA Paper 9929, University Library of Munich, Germany.
  8. Hendrik Hakenes & Isabel Schnabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_11, Max Planck Institute for Research on Collective Goods.
  9. Poonam Gupta & Thierry Tressel & Enrica Detragiache, 2005. "Finance in Lower Income Countries: An Empirical Exploration," IMF Working Papers 05/167, International Monetary Fund.
  10. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
  11. Minier, Jenny A, 1998. " Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-66, September.
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