Systemic crises and growth

Romain Ranciere, Aaron Tornell and Frank Westermann

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In this paper, we document the fact that countries that have experienced occasional financial crises have on average grown faster than countries with stable financial conditions. We measure the incidence of crisis with the skewness of credit growth, and find that it has a robust negative effect on GDP growth. This link coexists with the negative link between variance and growth typically found in the literature. To explain the link between crises and growth we present a model where weak institutions lead to severe financial constraints and low growth. Financial liberalization policies that facilitate risk-taking increase leverage and investment. This leads to higher growth, but also to a greater incidence of crises. Conditions are established under which the costs of crises are outweighed by the benefits of higher growth.

Keywords: Financial constraints; growth and institutions; bailout guarantees; volatility; emerging markets (search for similar items in EconPapers)
JEL-codes: F34 F36 F43 O41 (search for similar items in EconPapers)
Date: 2002-05, Revised 2004-11
New Economics Papers: this item is included in nep-dev and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Systemic Crises and Growth (2008)
Working Paper: Systemic Crises and Growth (2008)
Working Paper: Systemic Crises and Growth (2008)
Working Paper: Systemic Crises and Growth (2005)
Working Paper: Systemic Crises and Growth (2005)
Working Paper: Systemic Crises and Growth (2003)
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