Real Effects of Government Owned Banks: Evidence from an Emerging Market

This paper suggests real firm decisions may be influenced by political influences stemming from government-owned banks. Some firms are able to increase production and employment near elections due to increased borrowing from government-owned banks. This behavior occurs close to contested elections, and results in lower future employment growth in other parts of the country. The data examined is from Brazil.  The author concludes that the government is able to direct labor to politically attractive regions via the financial sector.