Abstract/Summary

Abstract How does finance affect economic growth? And does ownership matter? This paper investigates whether and how deposits in public vis-a-vis in private banks affect economic growth. It uses the power-ARCH framework with annual time series for Brazil from 1870 to 2018. There are three main findings: (a) the indirect impact of domestic financial development on economic growth is negative, whereas that of international financial development is positive, (b) the direct short-run effect of public and private banks is negative, while only for the latter does the positive direct long-run effect dominate, and (c) the indirect and direct short-run effect of public ownership banks is greater in size than that of private ownership banks.