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IEA- WB Roundtable-New Thinking on Industrial Policy May 22, 2012

Brief Comments on: “Financing Development: The Case of BNDES” by Ferraz , Leal, Marques, and Miterhof. IEA- WB Roundtable-New Thinking on Industrial Policy May 22, 2012. Growth in Real Lending: Latin American Banks. Growth in Real Lending: Eastern European Banks. Where did lending go? .

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IEA- WB Roundtable-New Thinking on Industrial Policy May 22, 2012

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  1. Brief Comments on: “Financing Development: The Case of BNDES”by Ferraz, Leal, Marques, and Miterhof IEA- WB Roundtable-New Thinking on Industrial Policy May 22, 2012

  2. Growth in Real Lending: Latin American Banks

  3. Growth in Real Lending: Eastern European Banks

  4. Where did lending go? ∆Li,t,j= Foreigni,t,j+ Governmenti,t,j+ Crisis_2008i,t,j + Crisis_2009i,t,j +Crisis_2008i,t,jForeigni,t,j + Crisis_2008i,t,jGovernmenti,t,j + Crisis_2009i,t,jForeigni,t,j + Crisis_2009i,t,jGovernmenti,t,j + Xi,t-1,j + j + ui,t,j • “Government-owned banks in Latin America stepped up their lending, relative to other banks and to their own pre-crisis lending pace, to corporations and consumers during the crisis.” • “This did not occur in Eastern Europe, where government-owned banks behaved no differently than domestic private banks.” (Cull and Martinez Peria, 2012)

  5. Why the differences between Latin America and Eastern Europe? Speculation • Larger, more state-owned banks in Latin America • Profitability Loan growth • Smaller government deficits BNDES not typical?

  6. All Brazilians Spared from Crisis?Likelihood that HH has formal loan, relative to 2003 baseline survey, Source: Cull, Leite, Scott (2011).

  7. Branch Expansion in Rural IndiaBurgess and Pande (2005), AER • 1:4 licensing policy, 1977-1990 • Rural branch expansion explains 14-17 percentage point decline in poverty headcount “Whether state monies invested in the banking sector would have generated greater poverty reduction if spent elsewhere is not a question we can address….The fact that bank loan default rates were in the range of 40 percent during the 1980s, leading to the demise of the rural branch expansion program, should make us sanguine about the advisability of such a program without careful consideration of both costs and benefits.”

  8. Brazilian Case “As a financial institution wholly-controlled by the federal government and with stable sources of funding to carry out its mission, the BNDES, throughout its history, has managed to rise to the challenges in fostering economic and social development in the country.” (p. 5) • At what cost? • Counter-factual? • Hypothesis testing • Benchmarking to other state-owned banks

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