The disproportionate growth of manufacturing industries after a banking crisis
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The nexus between the theory of finance and growth suggests that a developed banking system has a beneficial impact on economic growth. As the banking system evolves, however, it may respond procyclically during banking crises and affect the economy adversely. But it is uncertain how any adverse shock to the banking system may affect long-term growth. This study seeks to fill this gap by examining the aftermath of systemic banking crises using data on 23 manufacturing sectors across 100 countries from 1980 to 2019. The study finds that countries with well-developed banking systems, and manufacturing industries that rely heavily on banking finance as a source of external funding, experience faster growth generally, but a deeper contraction following a banking crisis.
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