Banking System Control, Capital Allocation, and Economy Performance
49 Pages Posted: 15 Dec 2009 Last revised: 30 Jan 2013
Date Written: December 2009
We observe less efficient capital allocation in countries whose banking systems are more thoroughly controlled by tycoons or families. The magnitude of this effect is similar to that of state control over banking. Unlike state control, tycoon or family control also correlates with slower economic and productivity growth, greater financial instability, and worse income inequality. These findings are consistent with theories that elite-capture of a country's financial system can embed "crony capitalism".
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