IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/1214.html
   My bibliography  Save this paper

The impact of financial crises on industrial growth: lessons from the last 40 years

Author

Listed:
  • Carlos Madeira

Abstract

This work shows the impact of financial crises across industries and the total manufacturing sector. I find both a direct impact of financial crises on all manufacturing growth and an additional effect through an external finance dependence channel. Externally dependent industries experience lower growth during banking and currency crises, especially in emerging markets and developing economies. Banking, currency and sovereign debt crises cause an average reduction in total manufacturing growth of 2.7%, 6% and 1%, respectively, with the direct effect being the most significant component. Finally, I show that macroprudential policies adopted after the Great Financial Crisis attenuated the fall in growth caused by banking crises.

Suggested Citation

  • Carlos Madeira, "undated". "The impact of financial crises on industrial growth: lessons from the last 40 years," BIS Working Papers 1214, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1214
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/work1214.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: https://www.bis.org/publ/work1214.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dwyer, Gerald P. & Devereux, John & Baier, Scott & Tamura, Robert, 2013. "Recessions, growth and banking crises," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 18-40.
    2. Madeira, Carlos, 2024. "The impact of macroprudential policies on industrial growth," Journal of International Money and Finance, Elsevier, vol. 145(C).
    3. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    4. Machado, José A.F. & Santos Silva, J.M.C., 2019. "Quantiles via moments," Journal of Econometrics, Elsevier, vol. 213(1), pages 145-173.
    5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    6. Joyce, Joseph P. & Nabar, Malhar, 2009. "Sudden stops, banking crises and investment collapses in emerging markets," Journal of Development Economics, Elsevier, vol. 90(2), pages 314-322, November.
    7. Nakatani, Ryota, 2020. "Macroprudential policy and the probability of a banking crisis," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1169-1186.
    8. Matthieu Bussière & Jin Cao & Jakob de Haan & Robert Hills & Simon Lloyd & Baptiste Meunier & Justine Pedrono & Dennis Reinhardt & Sonalika Sinha & Rhiannon Sowerbutts & Konstantin Styrin, 2021. "The interaction between macroprudential policy and monetary policy: Overview," Review of International Economics, Wiley Blackwell, vol. 29(1), pages 1-19, February.
    9. Bordo, M.D. & Meissner, C.M., 2016. "Fiscal and Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 355-412, Elsevier.
    10. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
    11. Claudio Raddatz, 2010. "Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 985-1003, November.
    12. Laeven, Luc & Valencia, Fabian, 2020. "Systemic Banking Crises Database: A Timely Update in COVID-19 Times," CEPR Discussion Papers 14569, C.E.P.R. Discussion Papers.
    13. Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter‐Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, June.
    14. Zohair Alam & Mr. Adrian Alter & Jesse Eiseman & Mr. Gaston Gelos & Mr. Heedon Kang & Mr. Machiko Narita & Erlend Nier & Naixi Wang, 2019. "Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database," IMF Working Papers 2019/066, International Monetary Fund.
    15. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 359-406.
    16. Dani Rodrik, 2021. "Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-Wing Populism," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 133-170, August.
    17. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    18. Levchenko, Andrei A. & Rancière, Romain & Thoenig, Mathias, 2009. "Growth and risk at the industry level: The real effects of financial liberalization," Journal of Development Economics, Elsevier, vol. 89(2), pages 210-222, July.
    19. Gabriele Galati & Richhild Moessner, 2018. "What Do We Know About the Effects of Macroprudential Policy?," Economica, London School of Economics and Political Science, vol. 85(340), pages 735-770, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Madeira, Carlos, 2024. "The impact of macroprudential policies on industrial growth," Journal of International Money and Finance, Elsevier, vol. 145(C).
    2. Thornton, John & Vasilakis, Chrysovalantis, 2023. "Bank regulations and surges and stops in credit: Panel evidence," Journal of Financial Stability, Elsevier, vol. 67(C).
    3. Norring, Anni, 2022. "Taming the tides of capital: Review of capital controls and macroprudential policy in emerging economies," BoF Economics Review 1/2022, Bank of Finland.
    4. Carmen M. Reinhart, 2022. "From Health Crisis to Financial Distress," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 4-31, March.
    5. Ho, Sy-Hoa & Saadaoui, Jamel, 2022. "Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries," International Economics, Elsevier, vol. 170(C), pages 115-128.
    6. Laeven, Luc & Perez-Quiros, Gabriel & Rivas, María Dolores Gadea, 2020. "Growth-and-risk trade-off," Working Paper Series 2397, European Central Bank.
    7. Eberhardt, Markus & Presbitero, Andrea F., 2021. "Commodity prices and banking crises," Journal of International Economics, Elsevier, vol. 131(C).
    8. Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 89-112, January.
    9. Carlos Madeira, 2023. "The evolution of macroprudential policy use in Chile, Latin America and the OECD," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(3), pages 357-380, September.
    10. Coulier, Lara & De Schryder, Selien, 2024. "Assessing the effects of borrower-based macroprudential policy on credit in the EU using intensity-based indices," Journal of International Money and Finance, Elsevier, vol. 142(C).
    11. Chokri Zehri & Zagros Madjd‐Sadjadi, 2024. "Capital flow management and monetary policy to control credit growth," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 637-676, July.
    12. Choi, Sangyup & Willems, Tim & Yoo, Seung Yong, 2024. "Revisiting the monetary transmission mechanism through an industry-level differential approach," Journal of Monetary Economics, Elsevier, vol. 145(C).
    13. Jokipii, Terhi & Monnin, Pierre, 2013. "The impact of banking sector stability on the real economy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1-16.
    14. Tiago F. A. Matos & João C. A. Teixeira & Tiago M. Dutra, 2023. "The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID‐19 pandemic shock," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 794-830, December.
    15. Devereux, John & Dwyer, Gerald P., 2016. "What determines output losses after banking crises?," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 69-94.
    16. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    17. Wilms, Philip & Swank, Job & de Haan, Jakob, 2018. "Determinants of the real impact of banking crises: A review and new evidence," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 54-70.
    18. Campos, Nauro F. & De Grauwe, Paul & Ji, Yuemei, 2023. "Structural reforms and economic performance: the experience of advanced economies," LSE Research Online Documents on Economics 120870, London School of Economics and Political Science, LSE Library.
    19. Manganelli, Simone & Popov, Alexander, 2015. "Financial development, sectoral reallocation, and volatility: International evidence," Journal of International Economics, Elsevier, vol. 96(2), pages 323-337.
    20. Iacovone, Leonardo & Ferro, Esteban & Pereira-López, Mariana & Zavacka, Veronika, 2019. "Banking crises and exports: Lessons from the past," Journal of Development Economics, Elsevier, vol. 138(C), pages 192-204.

    More about this item

    Keywords

    financial crises; banking crises; growth; external finance dependence; credit frictions;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:1214. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.