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Financial Crises, Development, and Growth: A Long-term Perspective

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Listed:
  • Carmen M. Reinhart
  • Vincent R. Reinhart

Abstract

Observed over long periods, the upward path of the output of most economies occasionally takes jagged steps down. More often than not, these events are associated with a variety of crises, including systemic banking stresses, exchange rate crashes, a burst of inflation, and a restructuring or default on sovereign debt. Using a large panel of countries over a long period, we document that crises are typically associated with lower medium-term growth. That may be a direct causal channel, a reverse channel, or the influence of some other factors on both growth and finance. But they tend to go together. Given that the forces for convergence of income across countries are estimated to be slow, going off track around a crisis will likely have long-lived consequences for relative economic development.

Suggested Citation

  • Carmen M. Reinhart & Vincent R. Reinhart, 2015. "Financial Crises, Development, and Growth: A Long-term Perspective," The World Bank Economic Review, World Bank, vol. 29(suppl_1), pages 53-76.
    • Handle: RePEc:oup:wbecrv:v:29:y:2015:i:suppl_1:p:s53-s76.
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    File URL: http://hdl.handle.net/10.1093/wber/lhv011
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    Cited by:

    1. Fabrizio Balassone & Sara Cecchetti & Martina Cecioni & Marika Cioffi & Wanda Cornacchia & Flavia Corneli & Gabriele Semeraro, 2018. "Economic governance in the euro area: balancing risk reduction and risk sharing," Chapters, in: Giuseppe Eusepi & Richard E. Wagner (ed.), Debt Default and Democracy, chapter 7, pages 124-154, Edward Elgar Publishing.
    2. Carmen M. Reinhart & Christoph Trebesch, 2016. "The International Monetary Fund: 70 Years of Reinvention," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 3-28, Winter.
    3. Claudio Borio & Marco Jacopo Lombardi & Fabrizio Zampolli, 2016. "Fiscal sustainability and the financial cycle," BIS Working Papers 552, Bank for International Settlements.
    4. Richard Pospisil, 2015. "Indebted World And Knowledge For The Future," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 3(2), pages 12-18, November.
    5. Concha Betrán & Maria A. Pon, 2019. "Capital Flow Bonanzas as a Fundamental Ingredient in Spain’s Financial Crises, 1850-2015," Working Papers 0164, European Historical Economics Society (EHES).
    6. Ugo Panizza, 2015. "Billions on the Sidewalk: Improving Savings by Reducing Investment Mistakes," IHEID Working Papers 18-2015, Economics Section, The Graduate Institute of International Studies.
    7. Everaert, Gerdie & Pozzi, Lorenzo, 2025. "Financial development in the aftermath of banking crises," Journal of International Money and Finance, Elsevier, vol. 157(C).
    8. Tonmoy Chatterjee & Soumyananda Dinda, 2022. "Preference Distortion, Information Cost and Comparative Advantage: A Theoretical Quest to Claim Trade Posture in Post-Pandemic Era," Foreign Trade Review, , vol. 57(2), pages 127-147, May.
    9. Gopalakrishnan, Balagopal & Mohapatra, Sanket, 2020. "Insolvency regimes and firms' default risk under economic uncertainty and shocks," Economic Modelling, Elsevier, vol. 91(C), pages 180-197.
    10. Ana-Cristina Bâlgăr, 2015. "The Role Of Foreign Direct Investment In Sustaining China’S Economic Growth," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 3(2), pages 87-99, November.
    11. Huang, Chai Liang & Chang, Yu Ching, 2022. "Growth impact of equity market crises: A global perspective," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 153-176.
    12. L’Huillier, Jean-Paul & Yoo, Donghoon, 2017. "Bad news in the Great Depression, the Great Recession, and other U.S. recessions: A comparative study," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 79-98.
    13. Sabaté, Marcela & Fillat, Carmen & Escario, Regina, 2019. "Budget deficits and money creation: Exploring their relation before Bretton Woods," Explorations in Economic History, Elsevier, vol. 72(C), pages 38-56.
    14. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano & Paolo Piselli, 2018. "Banking Crises and Boom-Bust Dynamics: Evidence for Italy (1861-2016)," CESifo Working Paper Series 6972, CESifo.
    15. Bank for International Settlements, 2018. "Structural changes in banking after the crisis," CGFS Papers, Bank for International Settlements, number 60.
    16. Dichtl, Hubert & Drobetz, Wolfgang & Otto, Tizian, 2023. "Forecasting Stock Market Crashes via Machine Learning," Journal of Financial Stability, Elsevier, vol. 65(C).
    17. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano & Paolo Piselli, 2018. "Banking crises and business cycle: evidence for Italy(1861-2016)," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 11(1), pages 34-61, October.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N2 - Economic History - - Financial Markets and Institutions
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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