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Financial crises, financial dependence, and industry growth


  • Laeven, Luc
  • Klingebiel, Daniela
  • Kroszner, Randy


The authors investigate the link between financial crises and industry growth. They analyze data from 19 industrial and developing countries that have experienced financial crises during the past 30 years to investigate how financial crises affect sectors dependent on external sources of finance. Specifically, the authors examine whether the impact of a financial crisis on externally dependent sectors varies with the depth of the financial system. They find that sectors highly dependent on external finance tend to experience a greater contraction of value added during a crisis in deeper financial systems than in countries with shallower financial systems. They hypothesize that the deepening of the financial system allows sectors dependent on external finance to obtain relatively more external funding in normal periods, so a crisis in such countries would have a disproportionately negative effect on externally dependent sectors. In contrast, since externally dependent firms tend to obtain relatively less external financing in shallower financial systems (and hence have relatively lower growth rates in such countries during normal times), a crisis in such countries has less of a disproportionately negative effect on the growth of externally dependent sectors.

Suggested Citation

  • Laeven, Luc & Klingebiel, Daniela & Kroszner, Randy, 2002. "Financial crises, financial dependence, and industry growth," Policy Research Working Paper Series 2855, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2855

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    References listed on IDEAS

    1. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
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    Cited by:

    1. 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.
    2. Antonio Ciccone & Elias Papaioannou, 2010. "Estimating cross-industry cross-country models using benchmark industry characteristics," Economics Working Papers 1235, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2016.
    3. George M. von Furstenberg & Ulf von Kalckreuth, 2007. "Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties," Economie Internationale, CEPII research center, issue 111, pages 55-80.
    4. Grabowski, Szymon, 2008. "What does a financial system say about future economic growth?," MPRA Paper 11560, University Library of Munich, Germany.
    5. Do, Quy-Toan & Levchenko, Andrei A., 2007. "Comparative advantage, demand for external finance, and financial development," Journal of Financial Economics, Elsevier, vol. 86(3), pages 796-834, December.
    6. Kroszner, Randall S. & Laeven, Luc & Klingebiel, Daniela, 2007. "Banking crises, financial dependence, and growth," Journal of Financial Economics, Elsevier, vol. 84(1), pages 187-228, April.
    7. Raymond Fisman & Inessa Love, 2007. "Financial Dependence and Growth Revisited," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 470-479, 04-05.
    8. Claessens,Constantijn A. & Klingebiel, Daniela & Laeven, Luc, 2004. "Resolving systemic financial crisis : policies and institutions," Policy Research Working Paper Series 3377, The World Bank.
    9. Nandini Gupta & Kathy Yuan, 2003. "Financial Dependence, Stock Market Liberalizations, and Growth," William Davidson Institute Working Papers Series 2003-562, William Davidson Institute at the University of Michigan.
    10. Feijen, Erik, 2005. "Do incumbents manipulate access to finance during banking crises?," Policy Research Working Paper Series 3660, The World Bank.
    11. Antonio Ciccone & Elias Papaioannou, 2006. "Adjustment to target capital, finance and growth," Economics Working Papers 982, Department of Economics and Business, Universitat Pompeu Fabra.


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