While the finance literature often equates government banks with political capture and capital misallocation, these banks can help mitigate financial shocks. This paper examines the role of Brazilís government banks in preventing a recession during the 2008-2010 financial crisis. Government banks in Brazil provided more credit, which offset declines in lending by private banks. Areas in Brazil with a high share of government banks experienced increases in lending, production, and employment during the crisis compared to areas with a low share of these banks. We find no evidence that lending was politically targeted or that it caused productivity to decline in the short-run.
Full paper (981 KB PDF)
Home | IFDPs | List of 2014 IFDPs
Accessibility | Contact Us
Last update: March 31, 2014