Role of bank credit on local growth: do politics and crisis matter?
Author
Önder, Z.
Özyıldırım, S.
Date
2013-04Source Title
Journal of Financial Stability
Print ISSN
1572-3089
Publisher
Elsevier
Volume
9
Issue
1
Pages
13 - 25
Language
English
Type
ArticleItem Usage Stats
120
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170
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Abstract
Although state-owned banks are expected to promote the growth of less-developed regions, especially in
developing economies, several cross-country studies report that lending by state banks is associated with
the inefficient allocation of credit and low levels of development. Further, state banks have been found to
lend to their cronies, especially around elections. In this paper, we study the lending activities of stateowned
and private banks during the period 1992–2010 and analyze the relationship between the credit
these banks provide and local economic growth in Turkey during crisis periods and in election years. We
find that the share of state-owned banks in the credit market in crisis periods and local election years is
significantly higher than their share in non-crisis and non-election periods. The per capita real credit that
state-owned banks provide during crisis years is found to be positively associated with local growth in
all provinces. Our results suggest that although state-owned banks might issue loans for political reasons
in election periods, they also seem to play an important role in offsetting the adverse effects of economic
shocks, especially in developed provinces.