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Is Government Ownership of Banks Really Harmful to Growth?

Author

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  • Svetlana Andrianova
  • Panicos Demetriades
  • Anja Shortland

Abstract

We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more 'fundamental' determinants of economic grwoth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks.

Suggested Citation

  • Svetlana Andrianova & Panicos Demetriades & Anja Shortland, 2009. "Is Government Ownership of Banks Really Harmful to Growth?," CEDI Discussion Paper Series 09-05, Centre for Economic Development and Institutions(CEDI), Brunel University.
    • Handle: RePEc:edb:cedidp:09-05
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    References listed on IDEAS

    as
    1. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, February.
    2. Hendrik Hakenes & Isabel Schnabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_11, Max Planck Institute for Research on Collective Goods.
    3. Delano Villanueva & Abbas Mirakhor, 1990. "Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 509-536, September.
    4. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Regulation vs nationalization
      by chris dillow in Stumbling and Mumbling on 2009-07-08 18:13:51
    2. What do nationalized banks do?
      by chris dillow in Stumbling and Mumbling on 2010-05-28 17:47:51

    Citations

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    Cited by:

    1. Gutierrez, Eva & Rudolph, Heinz P. & Homa, Theodore & Beneit, Enrique Blanco, 2011. "Development banks : role and mechanisms to increase their efficiency," Policy Research Working Paper Series 5729, The World Bank.
    2. Voszka, Éva, 2015. "Államosítás, privatizáció és gazdaságpolitika - a főirány széttöredezése [Nationalization and privatization - in the shadow of changing paradigms of economic policy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 717-748.
    3. Mr. Jesus R Gonzalez-Garcia & Mr. Francesco Grigoli, 2013. "State-Owned Banks and Fiscal Discipline," IMF Working Papers 2013/206, International Monetary Fund.
    4. Farazi Subika & Feyen Erik & Rocha Roberto, 2013. "Bank Ownership and Performance in the Middle East and North Africa Region," Review of Middle East Economics and Finance, De Gruyter, vol. 9(2), pages 159-196, August.
    5. Brei, Michael & Jacolin, Luc & Noah, Alphonse, 2020. "Credit risk and bank competition in Sub-Saharan Africa," Emerging Markets Review, Elsevier, vol. 44(C).
    6. Vernikov, Andrei, 2011. "Government Banking in Russia: Magnitude and New Features," IWH Discussion Papers 13/2011, Halle Institute for Economic Research (IWH).
    7. Brei, Michael & Schclarek, Alfredo, 2013. "Public bank lending in times of crisis," Journal of Financial Stability, Elsevier, vol. 9(4), pages 820-830.
    8. Schnabel, Isabel & Körner, Tobias, 2010. "Public Ownership of Banks and Economic Growth - The Role of Heterogeneity," CEPR Discussion Papers 8138, C.E.P.R. Discussion Papers.
    9. Bofinger, Peter & Geißendörfer, Lisa & Haas, Thomas & Mayer, Fabian, 2023. "Credit as an instrument for growth: A monetary explanation of the Chinese growth story," W.E.P. - Würzburg Economic Papers 107, University of Würzburg, Department of Economics.
    10. Király, Júlia, 2016. "A magyar bankrendszer tulajdonosi struktúrájának átalakulása [Transformation of the ownership structure of the Hungarian banking system]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 725-761.
    11. José Antonio Ocampo & Paola Arias & Juan David Torres, 2018. "La banca nacional de desarrollo en Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, issue 88, pages 1-36, December.
    12. Gelb, Alan & Tordo, Silvana & Halland, Havard & Arfaa, Noora & Smith, Gregory, 2014. "Sovereign wealth funds and long-term development finance : risks and opportunities," Policy Research Working Paper Series 6776, The World Bank.
    13. Marco Pedrotti, 2014. "A Model for the Interest Margin of a Risk-Neutral Bank. The Role of the Bank Orientation," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 167-180, June.
    14. Xiao, Sheng & Zhao, Shan, 2012. "Financial development, government ownership of banks and firm innovation," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 880-906.
    15. Guodong Chen & Mr. Yi Wu, 2014. "Bank Ownership and Credit Growth in Emerging Markets During and After the 2008–09 Financial Crisis — A Cross-Regional Comparison," IMF Working Papers 2014/171, International Monetary Fund.
    16. Daniel Nepelski & Giuditta De Prato, 2020. "Technological complexity and economic development," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 448-470, May.
    17. Malleson, Tom, 2014. "After Occupy: Economic Democracy for the 21st Century," OUP Catalogue, Oxford University Press, number 9780199330102.
    18. Elisabeth Paulet & Francesc Relano, 2018. "Chinese banking reforms in perspective: towards global alignment or national specificity?," Asia Pacific Business Review, Taylor & Francis Journals, vol. 24(3), pages 294-311, May.
    19. Stanislaw Flejterski & Marta Postula, 2020. "Wplyw struktury wlasnosci instytucji finansowych w krajach UE na rozwoj spoleczno-gospodarczy (The impact of the ownership structure of financial institutions in EU countries on the socio-economic dev," Research Reports, University of Warsaw, Faculty of Management, vol. 2(33), pages 5-17.
    20. Marie Luise Funke & Helena Xiang Li & Horst Löchel, 2016. "The High Profitability of Big Chinese State-Owned Banks and China’s Growth Model," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 121-134, August.

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    More about this item

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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