The Impact of Financial Crises on the Finance-Growth Relationship: A European Perspective

48 Pages Posted: 6 Feb 2012 Last revised: 18 Mar 2012

See all articles by Bernhard Mahlberg

Bernhard Mahlberg

Institute for Industrial Research (IWI); Vienna University of Economics and Business - Institute for Production Management

Peter R. Haiss

WU Vienna University of Economics and Business; UniCredit Bank Austria; IES Vienna - Institute for the International Education of Students

Hannes Juvan

Vienna University of Economics and Business

Date Written: October 10, 2011

Abstract

Rousseau and Wachtel (2011) [Rousseau, P., Wachtel, P., 2011. What is happening to the impact of financial deepening on economic growth? Economic Inquiry 49, 276-288] find a weakening effect of bank finance on growth for more recent periods in replicating King and Levine (1993) [King, R. G., Levine, R., 1993. Finance and Growth: Schumpeter Might Be Right. The Quarterly Journal of Economics 108, 717-737] in a heterogeneous sample up to 2004. We contribute by merging the financialization/crisis literature with the finance-growth literature and by re-examining this finding for a focused set of 30 European countries up to 2009. In a second step, we introduce an aggregated finance variable into the model which accounts for aggregate credit, bond and stock markets. We reconfirm a weakening effect of finance on growth, which is persistent even when dummy variables are added to control for financial crises. The development of European financial markets seems to have not only decoupled from the real sector but also to exert an inverted impact on growth. We attribute our finding to structural change and the procyclical nature of financial markets.

Keywords: finance, growth, crisis relationship, Europe

JEL Classification: C23, E44, G21, O11, O16, O52

Suggested Citation

Mahlberg, Bernhard and Haiss, Peter R. and Juvan, Hannes, The Impact of Financial Crises on the Finance-Growth Relationship: A European Perspective (October 10, 2011). Available at SSRN: https://ssrn.com/abstract=1505968 or http://dx.doi.org/10.2139/ssrn.1505968

Bernhard Mahlberg

Institute for Industrial Research (IWI) ( email )

Mittersteig 10/4
Vienna, 1050
Austria
+43 1 513 44 11 0 (Phone)
+43 1 513 44 11 2099 (Fax)

HOME PAGE: http://www.iwi.ac.at/

Vienna University of Economics and Business - Institute for Production Management ( email )

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Vienna, 1020
Austria
+43 1 313 36 - 5615 (Phone)

HOME PAGE: http://https://www.wu.ac.at/en/prodmanengl/

Peter R. Haiss (Contact Author)

WU Vienna University of Economics and Business ( email )

Institute for Export Management
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Vienna, A-1020
Austria
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++43-50505 8944214 (Fax)

UniCredit Bank Austria ( email )

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Vienna, A-1010
Austria
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++43-(0)50505 89 44214 (Fax)

HOME PAGE: http://www.bankaustria.com

IES Vienna - Institute for the International Education of Students

Johannesgasse 7
Vienna, A-1010
Austria

Hannes Juvan

Vienna University of Economics and Business ( email )

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