Working Paper: CEPR ID: DP8138
Authors: Tobias Krner; Isabel Schnabel
Abstract: 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.
Keywords: economic growth; financial development; political institutions; public banks; quality of governance
JEL Codes: G18; G21; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public ownership of banks (G21) | Lower GDP growth (F62) |
| Public ownership of banks (low financial development, weak political institutions) (O16) | Lower GDP growth (F62) |
| Public ownership of banks (high financial development) (O16) | Positive or null impact on GDP growth (F69) |
| Financial development (O16) | Impact of public ownership on GDP growth (F62) |
| Political institutions (D02) | Impact of public ownership on GDP growth (F62) |