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Privatization versus regulation in developing economies: The case of West African banks

Jean-Paul Azam, Bruno Biais () and Magueye Dia

No 315, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper builds on the case of West African banks to propose an analysis of the issues raised by government interference, privatization to foreign investors and regulation, in developing countries. In the late 80s, there was a severe crisis in the West African banking system, partly due to government interference. The restructuring of the banking system entailed privatization and foreign share ownership. During the 90s, both foreign ownership and the proportion of bad loans went down. We offer an interpretation of these stylized facts within the framework of a simple model where non benevolent governments are prone to political interference, as long as it does not generate too large expected social costs, and learn to refrain from interference after severe crises. Privatization to foreign investors seeking high return and high risk does not always ensure efficiency of the banking system, while regulation by independent agencies can be more effective. Further confrontation of the theory to the data is provided by panel regressions on profits, bad loans and ownership, ran across the seven countries of the West African Economic and Monetary Union from 1990 to 1997.

New Economics Papers: this item is included in nep-ifn
Date: 2000-02-01
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http://deepblue.lib.umich.edu/bitstream/2027.42/39699/3/wp315.pdf

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Journal Article: Privatisation versus Regulation in Developing Economies: The Case of West African Banks (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2000-315

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