The impact of public banks on Brazilian development

Public banks in Brazil are of crucial importance in the nation's financial landscape. These government-owned entities are instrumental in bolstering key sectors such as agriculture, infrastructure, and small business, thereby fostering overall economic growth. Additionally, they are central to the execution of government financial initiatives, with a particular focus on enhancing social welfare and ensuring economic stability. This research paper aims to answer whether this type of institution contributes significantly to Brazil's socio-economic development. Applying a difference in differences model the indices GDP, HDI, Gini and employment levels are compared between groups of Brazilian municipalities with and without public bank branches. The study sought to address the possible endogeneity of GDP by expanding the analysis to another control group, which included all municipalities that were not in the treatment group. The heterogeneity between the comparison groups was mitigated by applying propensity score matching. The findings were a positive and statistically significant impact of the presence of public banks on GDP and employment at the municipality level. Nevertheless, it was found ambiguous results for HDI and Gini, which were not statistically significant for most analyzes and with slightly negative effects in others. Finally, these findings contribute with reasonable insights into the relationship between public banks and development.