How do credit conditions shape economic recoveries?
AbstractThis paper investigates the role of credit in shaping economic recoveries and tries to shed some light on the phenomenon of creditless recoveries using industry-level data for a large sample of countries. We find that while a failure of the credit stock to recover to its pre-crisis level does not hamper growth, a failure of credit flows to recover slows down economic recovery. Next, we find that industries that are more dependent on external finance recover more quickly in countries with better financial development during creditless recoveries as defined by Calvo et al. (2006a). This indicates that certain mechanisms enable the economy to grow despite the creditless character of recovery. These mechanisms may include the availability of alternative sources of financing such as trade credit, the re-allocation to less credit dependent sectors, or the take-up of unutilized capacity. Finally, we find evidence that industries that are more dependent on trade credit as opposed to bank credit recover more quickly because they are less vulnerable to prolonged credit market disruptions. This 'substitution effect' is stronger during creditless recoveries, giving support to the view that creditless recoveries are a response to protracted disruptions in official credit markets.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8325.
Date of creation: Apr 2011
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Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- G01 - Financial Economics - - General - - - Financial Crises
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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- Bijsterbosch, Martin & Dahlhaus, Tatjana, 2011. "Determinants of credit-less recoveries," Working Paper Series 1358, European Central Bank.
- Forte, Antonio, 2012.
"Italy after the crisis: a case of recoveryless credit growth,"
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- Antonio FORTE, 2011. "Italy After The Crisis: A Case Of Recoveryless Credit Growth," Theoretical and Practical Research in Economic Fields, ASERS Publishing, vol. 0(2), pages 132-140, December.
- Sugawara, Naotaka & Zalduendo, Juan, 2013. "Credit-less recoveries : neither a rare nor an insurmountable challenge," Policy Research Working Paper Series 6459, The World Bank.
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