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Finance, Growth And Fragility

Panicos Demetriades (), Peter Rousseau () and Johan Rewilak

No 17/13, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We utilise a new international database of financial fragility indicators for 124 countries from 1998 to 2012 to investigate the effects of fragility on the finance-growth nexus. Cross-country growth regressions suggest that both financial fragility and private credit have negative effects on GDP growth over this period. The results are robust to controlling for systemic banking crises, confirming that financial fragility has additional negative effects on growth, even if a banking crisis is avoided. We also present results using interactions which suggest that (a) a large volume of impaired loans can amplify the negative effects of private credit on growth and (b) a sufficiently high z-score can eradicate the negative effects of private credit on growth.

New Economics Papers: this item is included in nep-fdg and nep-pke
Date: 2017-05
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