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Systemic Crisis and Growth Revisited: Has the Global Financial Crisis Marked a New Era?

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  • Sven Steinkamp
  • Frank Westermann

Abstract

Occasional crises have been shown to be part of growth enhancing mechanism (see Rancière, Tornell and Westermann, 2008). In this paper, we document that neither the stereotypical case study of India vs. Thailand, nor the benchmark growth-regression in this earlier research support this result anymore when updating the sample by one decade that includes the Global Financial Crisis, 2007/8. We analyze the time-varying nature of this relationship in rolling regressions and an historical dataset. In the subset of countries with enforceability problems, we find that the link between occasional crisis, measured by the negative skewness of credit growth, and per-capita output growth still remains intact.

Suggested Citation

  • Sven Steinkamp & Frank Westermann, 2018. "Systemic Crisis and Growth Revisited: Has the Global Financial Crisis Marked a New Era?," CESifo Working Paper Series 7094, CESifo.
    • Handle: RePEc:ces:ceswps:_7094
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    References listed on IDEAS

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    1. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 359-406.
    2. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    3. Poonam Gupta & Kalpana Kochhar & Sanjaya Panth, 2015. "Bank ownership and the effects of financial liberalization: evidence from India," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 8(1), pages 109-138, April.
    4. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2017. "Macrofinancial History and the New Business Cycle Facts," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 213-263.
    5. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    6. Asli Demirgüç-Kunt & Ross Levine (ed.), 2018. "Finance and Growth," Books, Edward Elgar Publishing, number 17120.
    7. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    8. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    9. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    10. Kenneth M. Kletzer, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy, and Gradual Reforms," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 227-275.
    11. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2003. "Liberalization, Growth, and Financial Crises: Lessons from Mexico and the Developing World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 1-112.
    12. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    13. Aaron Tornell & Frank Westermann, 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201593, December.
    14. Romain Rancière & Aaron Tornell, 2016. "Financial Liberalization, Debt Mismatch, Allocative Efficiency, and Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 1-44, April.
    15. Dennis P. Quinn & A. Maria Toyoda, 2008. "Does Capital Account Liberalization Lead to Growth?," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1403-1449, May.
    16. repec:hal:pseose:halshs-01314278 is not listed on IDEAS
    17. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    18. Thorsten Beck & Ross Levine (ed.), 2018. "Handbook of Finance and Development," Books, Edward Elgar Publishing, number 16685.
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    Cited by:

    1. Pawel Dlotko & Simon Rudkin & Wanling Qiu, 2019. "Topologically Mapping the Macroeconomy," Papers 1911.10476, arXiv.org.
    2. Filiz Mızrak & Serhat Yüksel, 2019. "Significant Determiners of Greek Debt Crisis: A Comparative Analysis with Probit and MARS Approaches," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 8(3), pages 33-50, July.

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    More about this item

    Keywords

    long-term growth; systemic crisis; financial liberalization;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • G01 - Financial Economics - - General - - - Financial Crises

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