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Privatization versus regulation in developing economies: The case of West African banks

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  • Jean Paul Azam
  • Bruno Biais
  • Magueye Dia

Abstract

This paper builds on the case of West African banks to propose an analysis of the issues raised by government interference, privatization to foreign investors and regulation, in developing countries. In the late 80s, there was a severe crisis in the West African banking system, partly due to government interference. The restructuring of the banking system entailed privatization and foreign share ownership. During the 90s, both foreign ownership and the proportion of bad loans went down. We offer an interpretation of these stylized facts within the framework of a simple model where non benevolent governments are prone to political interference, as long as it does not generate too large expected social costs, and learn to refrain from interference after severe crises. Privatization to foreign investors seeking high return and high risk does not always ensure efficiency of the banking system, while regulation by independent agencies can be more effective. Further confrontation of the theory to the data is provided by panel regressions on profits, bad loans and ownership, ran across the seven countries of the West African Economic and Monetary Union from 1990 to 1997.

Suggested Citation

  • Jean Paul Azam & Bruno Biais & Magueye Dia, 2000. "Privatization versus regulation in developing economies: The case of West African banks," William Davidson Institute Working Papers Series 315, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2000-315
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    Cited by:

    1. Azam, Jean-Paul & Dia, Magueye & Tsimpo, Clarence & Wodon, Quentin, 2007. "Has Growth in Senegal After the 1994 Devaluation Been Pro-Poor?," MPRA Paper 11110, University Library of Munich, Germany.
    2. Wanke, Peter & Maredza, Andrew & Gupta, Rangan, 2017. "Merger and acquisitions in South African banking: A network DEA model," Research in International Business and Finance, Elsevier, vol. 41(C), pages 362-376.
    3. KABLAN, Sandrine, 2012. "Microfinance efficiency in the West African Economic and Monetary Union: have reforms promoted sustainability or outreach?," MPRA Paper 39955, University Library of Munich, Germany.
    4. Carlos Pestana Barros & Emanuel Reis Leão & Nkanga Pedro João Macanda & Zorro Mendes, 2016. "A Bayesian Efficiency Analysis of Angolan Banks," South African Journal of Economics, Economic Society of South Africa, vol. 84(3), pages 484-498, September.
    5. Estrin, Saul & Pelletier, Adeline, 2016. "Privatisation in Developing Countries: What Are the Lessons of Recent Experience?," IZA Discussion Papers 10297, Institute for the Study of Labor (IZA).
    6. Barros, C.P. & Emrouznejad, Ali, 2016. "Assessing productive efficiency of banks using integrated Fuzzy-DEA and bootstrapping: A case of Mozambican banksAuthor-Name: Wanke, Peter," European Journal of Operational Research, Elsevier, vol. 249(1), pages 378-389.

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