Recessions, Growth and Banking Crises

48 Pages Posted: 25 May 2013  

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

John Devereux

CUNY Queens College

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Robert Tamura

Clemson University - John E. Walker Department of Economics; Federal Reserve Bank of Atlanta

Date Written: May 24, 2013

Abstract

We examine the relationship of banking crises with economic growth and recessions. Our data cover 21 economies from around the world, most from 1870 to 2009 with the rest starting in 1901 or earlier. The data include capital investment and human capital formation. We have two major findings. First, there is very large heterogeneity in growth of Gross Domestic Product (GDP) and capital investment after banking crises. Most strikingly, twenty-five percent of counties experience no decrease in real GDP per capita in the year of the crisis or the following two years. Some countries see an increase in long run growth after a crisis while others see a fall, with no clear overall pattern. Second, we find clear evidence consistent with Zarnowitz’s Law. If there is a contraction in economic activity after a banking crisis, larger decreases in real GDP per capita are followed by faster subsequent growth.

Keywords: Banking crises, recessions, growth, Zarnowitz

JEL Classification: G01, G21, E3

Suggested Citation

Dwyer, Gerald P. and Devereux, John and Baier, Scott L. and Tamura, Robert, Recessions, Growth and Banking Crises (May 24, 2013). Available at SSRN: https://ssrn.com/abstract=2269676 or http://dx.doi.org/10.2139/ssrn.2269676

Gerald P. Dwyer (Contact Author)

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

John Devereux

CUNY Queens College

Flushing, NY 11367
United States

Scott Leonard Baier

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Robert Tamura

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-1242 (Phone)
864-656-4192 (Fax)

Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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