Does more finance lead to longer crises?

Clément Mathonnat, Alexandru Minea and Marcel Voia

The World Economy, 2022, vol. 45, issue 1, 111-135

Abstract: Empirical studies emphasise that higher financial development (FD) amplifies the output cost of banking crises. However, no study has so far investigated the effect of FD on another key dimension of banking crises, namely their duration. Using a large sample of banking crises over the 1977–2014 period, we find that higher FD is associated with a significant increase in the duration of banking crises (DBC). This result is robust to a broad range of alternative specifications and is unaffected by unobserved heterogeneity or endogeneity. Finally, we show that the effect of FD on DBC is subject to nonlinearities and varies across decades and with the level of economic development.

Date: 2022
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https://doi.org/10.1111/twec.13159

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