Socioeconomic development of Brazilian municipalities: The role of public and private banks

Abstract

The economic literature has discussed the role of public banks regarding their performance as drivers of socioeconomic development, highlighting their social role when compared to private banks. This paper contributes to this discussion and analyzes the impact of the physical presence of public and private commercial banks on the Firjan Index of Municipal Development (FMDI) of Brazilian municipalities. The results of a logit panel model show that public banks have greater impact on the FMDI rather than private banks, taking into account where the municipality is located and the externalities caused by the neighboring municipality. There is great probability of a municipality being in a high level of development if it has the physical presence of commercial public banks.