The impact of state-owned banks on economic performance of emerging market economies

Abstract

A well-functioning financial system facilitates economic growth through exploitation of market opportunities like product innovation, discovery of novel ideas and new resources, technological advancements, innovative and sustainable ways of using existing resources. The financial system is the engine room of financial intermediation between the surplus and the deficit sectors developing a strong financial system and other economic entities has a great potential of driving economic growth of a country. The prior studies that investigated the subject did not consider the potential impact of stateowned banks on the both economy and social developments. Therefore, this paper will contribute by broadening the research to include state-owned banks’ impact on economic and social development with a particular focus on developing and emerging economies. A judgemental sampling technique in selecting 13 countries was followed as a deliberate choice to enable selection of study units based on the qualities possessed by such units. The sample units were identifiable into two categories; state-owned banks and privatelyowned banks in a sample of countries for the period 1961 - 2016. The study utilised two forms of panel data models, the fixed effects model and random effects model. The study found that credit extension by state-owned banks has a positive effect on GDP per capita growth, human development, employment rate and lead to a decrease in the poverty rate. However, it is negatively related to manufacturing as a proportion of GDP.