Financial Development, Financial Fragility, and Growth

32 Pages Posted: 3 Mar 2006

See all articles by Norman Loayza

Norman Loayza

World Bank - Research Department

Romain G. Rancière

University of Southern California

Multiple version iconThere are 3 versions of this paper

Date Written: August 2005


This paper studies the apparent contradictions between two strands of the literature on the effects of financial intermediation on economic activity. On the one hand, the empirical growth literature finds a positive effect of financial depth as measured by, for instance, private domestic credit and liquid liabilities. On the other hand, the banking and currency crisis literature finds that monetary aggregates, such as domestic credit, are among the best predictors of crises and their related economic downturns. This paper accounts for these contrasting effects based on the distinction between the short- and long-run effects of financial intermediation.

Keywords: Growth empirics, banking crisis, pooled mean group estimation

JEL Classification: G21, O11, O16

Suggested Citation

Loayza, Norman and Rancière, Romain G., Financial Development, Financial Fragility, and Growth (August 2005). IMF Working Paper, Vol. , pp. 1-32, 2005. Available at SSRN:

Norman Loayza (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Romain G. Rancière

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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