Government-owned Banks And Economic Growth

Government-owned banks are a crucial part in bank system in many countries. But on the question that how government-owned banks would influence economic growth, researchers hold different opinions. Using the four-period surveys conducted by the World Bank, this article shows with panel analysis that whether government ownership of banks could stimulate economic growth depends on the bank supervision. For countries with strict supervision, government ownership has a positive effect on economic growth, whereas for countries with loose supervision the negative effect dominates. What is more, results from robustness analysis also indicate that strict bank supervision can help government-owned banks improve the total factor productivity, hence promote the economic growth.Considering that the ratio of government-owned banks in China is high and bank supervision system in China is far from well-functioning, it is imperative to strengthen the power of bank supervision agency, because this could improve the efficiency of capital allocation and help keep the economic growth rate at a fast speed in the future.