Financial development, crises and growth

This article examines whether the effect of crises on growth varies across different levels of financial development. Using panel dataset and dynamic panel data estimation techniques, we find that financial crises have a strong negative effect on growth. More importantly, this impact varies with the level of financial development, such that countries with better developed financial systems are adversely affected by crises whereas such effects are minimal or nonexistent in economies with less developed systems. These results are robust across various model specifications.