Financial Development, Financial Fragility, and Growth
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Citations
The effect of financial development on economic growth: a meta-analysis
The dynamic effects of banking, life insurance, and stock markets on economic growth
Larger crises cost more: Impact of banking sector instability on output growth
Spinoffs and clustering
Is the Financial Development and Economic Growth Relationship Nonlinear
References
Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.
Initial conditions and moment restrictions in dynamic panel data models
Another look at the instrumental variable estimation of error-components models
Economic Growth in a Cross Section of Countries
Finance and Growth: Schumpeter Might Be Right
Related Papers (5)
Frequently Asked Questions (11)
Q2. What are the future works mentioned in the paper "Financial development, financial fragility," ?
Recognizing the possibility of a dual effect of financial intermediation on economic growth, this paper estimates an encompassing empirical model of long- and short-run effects using a sample of cross-country and time-series observations. The authors find that a positive long-run relationship between financial intermediation and output growth can coexist with a negative short-run relationship, which indeed is the case for the average country in the sample. Since the methodology allows us to obtain the short-run effects of financial intermediation on growth country by country, the authors can attempt to link these effects to the aspects of financial liberalization that the literature proposes as harmful to growth. The authors find that financially fragile countries, namely those that experience banking crises or suffer high financial volatility, tend to present significantly negative short-run effects of intermediation on growth.
Q3. What are the main requirements for the validity of this methodology?
The main requirements for the validity of this methodology are that, first, there exist a long-run relationship among the variables of interest and, second, the dynamic specification of the model be sufficiently augmented so that the regressors are strictly exogenous and the resulting residual is serially uncorrelated.
Q4. What is the effect of financial depth on growth?
whereas financial depth leads to higher growth, financial fragility --as captured by financial volatility and banking crises-- has negative growth consequences.
Q5. What are the two conditions that are required to be considered as exogenous?
The first are that the regression residuals be serially uncorrelated and that the explanatory variables can be treated as exogenous.
Q6. What criteria can be used to select the lag order of the ARDL?
When the main interest is on the long-run parameters, the lag order of the ARDL can be selected using some consistent information criteria (such as the Schwartz-Bayesian Criterion) on a country-by-country basis.
Q7. Does the Hausman test reject the homogeneity of individual long-run coefficients?
The Hausman test does not reject the joint homogeneity of all long-run parameters; and it does not reject the homogeneity of individual long-run coefficients except for that on initial income.
Q8. How can the authors get a broad sense of the economic importance of these effects?
The authors can get a broad sense of the economic importance of these effects by using the point estimate of the regression coefficients to calculate the growth impact of a change in their financial measures.
Q9. How is the estimation of the long-run slope coefficients done?
the estimation of the long-run slope coefficients is done jointly across countries through a (concentrated) maximum likelihood procedure.
Q10. How much does an increase in one sample standard deviation of financial depth lead to economic growth?
On the other hand, an increase in one sample standard deviation of financial depth leads to economic growth rising by 0.9 percentage points.
Q11. What is the average short-run impact of financial intermediation on output growth?
Countries that experienced financial crises in the last 40 years exhibit an average shortrun impact of financial intermediation on output growth that is significantly more negative than the average of countries that did not have any crisis.