DP8138 Public Ownership of Banks and Economic Growth - The Role of Heterogeneity

Author(s): Tobias Körner, Isabel Schnabel
Publication Date: December 2010
Keyword(s): Economic growth, Financial development, Political institutions, Public banks, Quality of governance
JEL(s): G18, G21, O16
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8138

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.