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Does Finance Cause Growth? Evidence from the Origins of Banking in Russia

42 Pages Posted: 2 May 2012  

Daniel Berkowitz

University of Pittsburgh - Department of Economics

Mark Hoekstra

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Koen J. L. Schoors

Ghent University-Universiteit Gent - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University-Universiteit Gent - Department of General Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2012

Abstract

This paper examines the effect of banking on economic growth in modern Russia. To overcome simultaneity and selection, we exploit regional banking variation induced by the creation of 'specialized banks' (spetsbanks) in the last years of the Soviet Union (1988-1991). Consistent with the qualitative work of Joel Hellman [1993] and Juliet Johnson [2000], we show that these reforms generated an ideal natural experiment in that the concentration of spetsbanks is jointly uncorrelated with 15 predictors of future growth, including pre-banking income, education, anti-market sentiment, institutional quality, and government interference in the economy. Results indicate that while the presence of one additional spetsbank per million inhabitants increased total within-state lending to private firms and individuals by 14 to 26 percent in the early 2000s, it had no effect on investment or per capita income. In contrast, we find that spetsbanks increased employment. Additional results indicate that spetsbanks increased growth in regions in which they were less connected to government and were generally more similar to non-spetsbanks, as well as in regions that were better at protecting property rights. Our results thus strongly suggest that bank origins, political connections, and property rights are important determinants of effective finance.

Keywords: finance, growth, banking, Russia

JEL Classification: O4, F3, G2, P3

Suggested Citation

Berkowitz, Daniel and Hoekstra, Mark and Schoors, Koen J. L., Does Finance Cause Growth? Evidence from the Origins of Banking in Russia (April 27, 2012). BOFIT Discussion Paper No. 10/2012. Available at SSRN: https://ssrn.com/abstract=2049780 or http://dx.doi.org/10.2139/ssrn.2049780

Daniel Berkowitz

University of Pittsburgh - Department of Economics ( email )

4711 WWPH
Pittsburgh, PA 15260
United States
412-648-7072 (Phone)
412-648-3011 (Fax)

HOME PAGE: http://www.pitt.edu/~dmberk

Mark Hoekstra

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koen J. L. Schoors (Contact Author)

Ghent University-Universiteit Gent - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

Ghent University-Universiteit Gent - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

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