Bank privatization, finance, and growth

Daniel Berkowitz, Mark Hoekstra and Koen Schoors

Journal of Development Economics, 2014, vol. 110, issue C, 93-106

Abstract: This paper examines whether privatizing state-owned banks improves finance and economic growth. To do so, we exploit regional banking variations in Russia induced by the idiosyncratic creation of “specialized banks” in the last years of the Soviet Union (1988–91) that were subsequently privatized. Starting in 1999 private banks including surviving spetsbanks emerged as an important source of external finance for private firms and households. We document that the regional concentration of spetsbanks in the early years of the Russian federation is orthogonal to economic fundamentals that are related to growth after the emergence of bank finance. Results indicate that while privatized banking increased lending significantly, it did not increase economic growth. However, privatization did increase growth when banks retained fewer political connections and when regional property rights were better protected, highlighting the importance of both factors.

Keywords: Bank privatization; Finance; Growth; Political connections; Property rights; Spetsbanks (specialized banks) (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (43)

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Related works:
Working Paper: Does Finance Cause Growth? Evidence from the Origins of Banking in Russia (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:110:y:2014:i:c:p:93-106

DOI: 10.1016/j.jdeveco.2014.05.005

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