respectively. They would like to thank Eugenio de Bellard, Melissa Johns and Nikolay Naumovich for their outstanding help with collecting and analyzing the data. The vews presented in this paper do not reflect those of the World Bank or of Lex Mundi. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

for comments, and the NSF for support of this research. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

In this paper, we investigate a neglected aspect of financial systems of many countries around the world: government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is particularly significant in countries with low levels of per capita income, underdeveloped financial systems, interventionist and inefficient governments, and poor protection of property rights. Third, government ownership of banks is associated with slower subsequent financial development. Finally, government ownership of banks is associated with lower subsequent growth of per capita income, and in particular with lower growth of productivity rather than slower factor accumulation. This evidence is inconsistent with the optimistic "development" theories of government ownership of banks common in the 1960s, but supports the more recent "political" theories of the effects of government ownership of firms.