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

42 Pages Posted: 3 Oct 2010

See all articles by Tobias Körner

Tobias Körner

German Council of Economic Experts

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Date Written: September 1, 2010

Abstract

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

Körner, Tobias and Schnabel, Isabel, Public Ownership of Banks and Economic Growth – The Role of Heterogeneity (September 1, 2010). MPI Collective Goods Preprint, No. 2010/41. Available at SSRN: https://ssrn.com/abstract=1685271 or http://dx.doi.org/10.2139/ssrn.1685271

Tobias Körner

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany
+49(0)611 75 28 86 (Phone)

Isabel Schnabel (Contact Author)

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

HOME PAGE: http://www.finance.uni-bonn.de/schnabel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+49-228-9141665 (Phone)
+49-228-9141621 (Fax)

HOME PAGE: http://www.coll.mpg.de/team/page/isabel_schnabel

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