Public Ownership of Banks and Economic Growth – The Role of Heterogeneity
42 Pages Posted: 3 Oct 2010
Date Written: September 1, 2010
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.
Keywords: Public banks, economic growth, financial development, quality of governance, political institutions
JEL Classification: G18, G21, O16
Suggested Citation: Suggested Citation