Public Ownership of Banks and Economic Growth

35 Pages Posted: 28 Jun 2011

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: July 2011

Abstract

In an influential article, La Porta et al. (2002) argue 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 initial conditions, in particular its 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, initial conditions, financial development, quality of political institutions

JEL Classification: O16, G18, G21

Suggested Citation

Körner, Tobias and Schnabel, Isabel, Public Ownership of Banks and Economic Growth (July 2011). Economics of Transition, Vol. 19, Issue 3, pp. 407-441, 2011. Available at SSRN: https://ssrn.com/abstract=1873779 or http://dx.doi.org/10.1111/j.1468-0351.2011.00421.x

Tobias Körner (Contact Author)

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

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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