Easing economic vulnerability: Multidimensional evidence of financial development

Canh Phuc Nguyen and Thanh Su

The Quarterly Review of Economics and Finance, 2021, vol. 81, issue C, 237-252

Abstract: This study is the first proper attempt to investigate the influence of financial development as a component of an institutional framework on economic vulnerability. Using a global sample of 76 countries from 1997 to 2017 and a series of econometric panel estimates, the findings are robust and consistent. The development of the financial system is found to have a significant negative impact on economic vulnerability, as demonstrated through investigations on the global sample and two sub-samples of 39 low- and lower-middle-income economies and 37 upper-middle and high-income economies. The analysis of three dimensions (financial depth, financial access, and financial efficiency) and two sub-sectors (financial institutions, and financial markets) also shows consistent negative impacts of financial development on economic vulnerability. Notably, the study documents a U-shaped effect of financial development on economic vulnerability. The findings are believed to warrant policymakers’ interest in the positive aspects of the financial system in easing economic vulnerability.

Keywords: Economic vulnerability; Financial development; Financial markets; Financial institutions (search for similar items in EconPapers)
JEL-codes: E32 E60 G21 G22 G23 G24 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:81:y:2021:i:c:p:237-252

DOI: 10.1016/j.qref.2021.06.007

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