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Job market paper

Government-owned Banks and Development: on Unintended Consequences of Bank Privatizations.

This paper examines the impact of bank privatization on branches lending patterns and local economic performance. Using detailed geo-coded bank-branch and locality-level data from Brazil, the paper exploits location information of branches and the time variation in reform participation to estimate bank privatization effects. Relative to their non-privatized counterparts, privatized banks display a large and significant contraction in lending supply alongside branch closures that adversely impact bank access, with more severe effects in less developed locations. Localities exposed to privatization also experience declines in the economic outcomes when compared to pre-reform trends. Privatized banks display increases in profitability after the reform suggesting positive effects of privatization on bank efficiency, albeit at the expense of rising concentration. Overall, the evidence is more consistent with the development view of public banks.

Fields

Macroeconomics, Finance, Development economics, Banking

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