Working Paper: NBER ID: w7620
Authors: Rafael La Porta; Florencio Lopez-de-Silanes; Andrei Shleifer
Abstract: In this paper, we investigate a neglected aspect of financial systems of many countries around the world: government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is particularly significant in countries with low levels of per capita income, underdeveloped financial systems, interventionist and inefficient governments, and poor protection of property rights. Third, government ownership of banks is associated with slower subsequent financial development. Finally, government ownership of banks is associated with lower subsequent growth of per capita income, and in particular with lower growth of productivity rather than slower factor accumulation. This evidence is inconsistent with the optimistic development' theories of government ownership of banks common in the 1960s, but supports the more recent political' theories of the effects of government ownership of firms.
Keywords: government ownership; banks; financial development; economic growth
JEL Codes: G21; L32; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government ownership of banks (G28) | financial development (O16) |
| government ownership of banks (G28) | economic growth (O49) |
| government ownership of banks (G28) | slower financial development (O16) |
| government ownership of banks (G28) | lower economic growth rates (F62) |
| low income (I32) | government ownership of banks (G28) |
| underdeveloped financial systems (P34) | government ownership of banks (G28) |
| weak property rights (P14) | government ownership of banks (G28) |