State-Owned Banks: Do They Promote or Depress Financial Development and Economic Growth?

30 Pages Posted: 10 Dec 2004

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Alejandro Micco

University of Chile

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Abstract

This paper surveys the theoretical and empirical literature on the role of state-owned banks and also presents some new results and a robustness analysis. After having discussed whether there is a theoretical justification for the presence of state-owned banks, the paper focuses on their performance. Three basic facts emerge: (i) state-owned banks located in developing countries are characterized by lower profitability than comparable privately owned banks; (ii) there is no evidence that the presence of state-owned banks promotes economic growth or financial development; and (iii) the evidence that state-owned banks lead to lower growth and financial development is not as strong as previously thought. The paper concludes that we still do not know enough to pass a final judgment on the role of state-owned banks and hence more research is needed.

Keywords: Banking, privatization, state-owned banks, financial development, Latin America

JEL Classification: G21, H11, O16

Suggested Citation

Levy-Yeyati, Eduardo Levy and Micco, Alejandro and Panizza, Ugo, State-Owned Banks: Do They Promote or Depress Financial Development and Economic Growth?. Available at SSRN: https://ssrn.com/abstract=629384 or http://dx.doi.org/10.2139/ssrn.629384

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Ugo Panizza (Contact Author)

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR

London
United Kingdom

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