Financial development, diversity, and economic stability: Micro and systemic evidence

Beniamino Pisicoli

International Economics, 2023, vol. 175, issue C, 187-200

Abstract: In this “Data, Tools and Replication” paper we adapt the complexity algorithm by Hidalgo and Hausmann (2009) to the financial sector and compute a measure of financial development that is intrinsically linked to its diversity dimension. We then test the impact of financial development on financial stability, economic resilience and growth, focusing on Italy. By employing an index that levers on the diversity dimension of financial development, our findings reveal that higher degrees of financial development translate into a lower financial fragility and a more resilient real economy. Indeed, territories denoted by more diverse and developed financial systems show an increased firm natality rate, a reduced firm mortality rate, and a lower probability of experiencing employment and GDP drops. Finally, higher financial development also spurs economic growth. Results are confirmed at micro-level, and higher levels of financial development and diversity decrease the probability of firms’ exit from the market and enhance their investment activity. Our findings unveil the importance of considering the diversity dimension of financial development when investigating its role on economic performance.

Keywords: Financial development; Financial stability; Economic resilience; Financial crises; Financial diversity (search for similar items in EconPapers)
JEL-codes: G01 G20 P34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2110701723000549
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:175:y:2023:i:c:p:187-200

DOI: 10.1016/j.inteco.2023.08.002

Access Statistics for this article

International Economics is currently edited by Valerie Mignon and Marcelo Olarreaga

More articles in International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().