Contemporary Development Financial Institutions in Europe

The chapter focuses on development financial institutions (DFIs) in Europe, that is public sector or government-invested legal entities with an explicit policy mandate to promote the socio-economic goals in a region, sector or specific market segment. DFIs play a relevant role in the economy, since they provide financial services to strategic sectors, sustain growth during period of recession, invest in physical and technological infrastructures. Besides, more recently, they are increasingly addressing their activity to yield social payoffs and positive externalities for society as a whole, such as stimulating technology innovation and channelling funds to long-term global societal challenges such as climate change, renewable and environmental-friendly energy, food security. In spite of their role in the economy, DFIs have not deserved a proper attention in the academic literature and they remain a quite under-analysed phenomenon. This chapter aims to fill this gap with a detailed analysis of firm-level characteristics and activities of contemporary European DFIs. Specifically, Section 2 introduces the phenomenon of development banks, explains the traditional theoretical framework where the existence of DFIs is discussed and why they represent a rising and important component of State Capitalism. Section 3 describes the characteristics of contemporary DFIs in Europe and discuss their growing role in funding innovation and supporting a response to global and new societal challenges. Section 4 presents the empirical analysis, which aims at discussing the role of DFIs as vehicles for state intervention in several sectors, with a specific focus on their strategic support to innovation. The dataset includes 132 entities, that is all the DFIs headquartered in Europe. Among them, 8 are sovranational, like the European Investment Banks, while the others are ultimately controlled by national (or even regional or local) governments. Economic and financial indicators are from Orbis, while information on DFIs mission, lending and funding activities, target industries and markets are collected case-by-case from annual reports, web sites and all public available information.