Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help
This paper examines how financial expansion and contraction cycles affect the broader economy through their impact on eight real economic sectors in a panel of 28 countries over 1960-2005, paying particular attention to large, or sharp, contraction...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111026090001 http://hdl.handle.net/10986/3626 |
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okr-10986-3626 |
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| recordtype |
oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ABSOLUTE VALUE ACCOUNTING ADVANCED ECONOMIES ADVERSE EFFECT ADVERSE EFFECTS ADVERSE IMPACT AGGREGATE LEVEL AGRICULTURAL SECTOR AGRICULTURE ANNUAL GROWTH ANNUAL GROWTH RATE AVERAGE GROWTH AVERAGE GROWTH RATE AVERAGE LEVEL BALANCE SHEET BANK POLICY BANKING CRISES BANKING CRISIS BENCHMARK BOOM-BUST CYCLES BUFFER BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL FLIGHT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY COLLATERAL COMPARATIVE ADVANTAGE CONTROL VARIABLE CONVERGENCE HYPOTHESIS CORRELATION COEFFICIENTS COUNTRY LEVEL CREDIT MARKETS CROSS-BORDER CAPITAL CUMULATIVE DISTRIBUTION CUMULATIVE DISTRIBUTION FUNCTION CURRENCY CURRENCY CRISES CURRENCY CRISIS DEBT DEFICITS DEFLATION DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT INDICATORS DEVELOPMENT POLICY DIMINISHING RETURNS DOMESTIC DEMAND DUMMY VARIABLES ECONOMIC CONTRACTIONS ECONOMIC CRISIS ECONOMIC DOWNTURNS ECONOMIC GROWTH ECONOMIC IMPACT ECONOMIC LITERATURE ECONOMIC SECTORS ECONOMICS LETTERS EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ESTIMATES ERROR TERM ESTIMATION RESULTS EXOGENOUS VARIABLES EXPLANATORY VARIABLES EXPORTS EXPOSURE EXTERNAL FINANCE EXTERNAL FINANCING FINANCIAL ASSETS FINANCIAL CAPITAL FINANCIAL COLLATERAL FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL SHOCK FINANCIAL SHOCKS FINANCIAL STABILITY FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIALLY OPEN ECONOMIES FIXED EFFECTS FOREIGN ASSETS FOREIGN CAPITAL FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN RESERVES FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL CURRENCY GLOBALIZATION GOVERNANCE INDICATORS GOVERNMENT EXPENDITURES GOVERNMENT SPENDING GROWTH RATE GROWTH RATES GROWTH THEORY HOLDING IMPORTS INCOME INFLATION INFLATION RATES INSURANCE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL RESERVES INVESTMENT PROJECTS LAGGED GROWTH LAGGED VALUE LIBERALIZATION LIQUIDITY LIQUIDITY CRUNCH LONG-RUN GROWTH MACROECONOMICS MARGINAL EFFECT MARGINAL RETURNS MARKET LIQUIDITY MARKET VALUES MEAN GROWTH MONETARY FUND MORAL HAZARD MORTGAGE MORTGAGE LOANS NEGATIVE EFFECT NEGATIVE IMPACT NEOCLASSICAL GROWTH MODEL NORMAL DISTRIBUTION NULL HYPOTHESIS OPEN ECONOMIES OUTPUT OUTPUT COLLAPSES OUTPUT LOSS PANEL REGRESSIONS POLICY OPTIONS POLICY RESEARCH POLITICAL STABILITY POLITICAL TURMOIL POVERTY REDUCTION PRIVATE CAPITAL PRIVATE CAPITAL FLOW PRIVATE CAPITAL FLOWS PRIVATE INVESTMENT PRODUCTIVITY GROWTH PUBLIC GOOD PUBLIC INVESTMENT PUBLIC UTILITIES RAPID EXPANSION REAL ESTATE REAL GDP REAL GROWTH RATE REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES RECESSION REGRESSION ANALYSIS REGULATORY REFORM RELATIVE WEIGHTS RESERVE ACCUMULATION RESERVE CURRENCY RESERVE HOLDINGS ROBUSTNESS CHECK RULE OF LAW SERIAL CORRELATION SOCIAL COSTS STABLE ECONOMIC GROWTH STATISTICAL ANALYSIS STRUCTURAL BREAK STRUCTURAL CHANGE TRADE OPENNESS VALUE ADDED WEALTH WORLD DEVELOPMENT INDICATORS |
| spellingShingle |
ABSOLUTE VALUE ACCOUNTING ADVANCED ECONOMIES ADVERSE EFFECT ADVERSE EFFECTS ADVERSE IMPACT AGGREGATE LEVEL AGRICULTURAL SECTOR AGRICULTURE ANNUAL GROWTH ANNUAL GROWTH RATE AVERAGE GROWTH AVERAGE GROWTH RATE AVERAGE LEVEL BALANCE SHEET BANK POLICY BANKING CRISES BANKING CRISIS BENCHMARK BOOM-BUST CYCLES BUFFER BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL FLIGHT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY COLLATERAL COMPARATIVE ADVANTAGE CONTROL VARIABLE CONVERGENCE HYPOTHESIS CORRELATION COEFFICIENTS COUNTRY LEVEL CREDIT MARKETS CROSS-BORDER CAPITAL CUMULATIVE DISTRIBUTION CUMULATIVE DISTRIBUTION FUNCTION CURRENCY CURRENCY CRISES CURRENCY CRISIS DEBT DEFICITS DEFLATION DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT INDICATORS DEVELOPMENT POLICY DIMINISHING RETURNS DOMESTIC DEMAND DUMMY VARIABLES ECONOMIC CONTRACTIONS ECONOMIC CRISIS ECONOMIC DOWNTURNS ECONOMIC GROWTH ECONOMIC IMPACT ECONOMIC LITERATURE ECONOMIC SECTORS ECONOMICS LETTERS EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ESTIMATES ERROR TERM ESTIMATION RESULTS EXOGENOUS VARIABLES EXPLANATORY VARIABLES EXPORTS EXPOSURE EXTERNAL FINANCE EXTERNAL FINANCING FINANCIAL ASSETS FINANCIAL CAPITAL FINANCIAL COLLATERAL FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL SHOCK FINANCIAL SHOCKS FINANCIAL STABILITY FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIALLY OPEN ECONOMIES FIXED EFFECTS FOREIGN ASSETS FOREIGN CAPITAL FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN RESERVES FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL CURRENCY GLOBALIZATION GOVERNANCE INDICATORS GOVERNMENT EXPENDITURES GOVERNMENT SPENDING GROWTH RATE GROWTH RATES GROWTH THEORY HOLDING IMPORTS INCOME INFLATION INFLATION RATES INSURANCE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL RESERVES INVESTMENT PROJECTS LAGGED GROWTH LAGGED VALUE LIBERALIZATION LIQUIDITY LIQUIDITY CRUNCH LONG-RUN GROWTH MACROECONOMICS MARGINAL EFFECT MARGINAL RETURNS MARKET LIQUIDITY MARKET VALUES MEAN GROWTH MONETARY FUND MORAL HAZARD MORTGAGE MORTGAGE LOANS NEGATIVE EFFECT NEGATIVE IMPACT NEOCLASSICAL GROWTH MODEL NORMAL DISTRIBUTION NULL HYPOTHESIS OPEN ECONOMIES OUTPUT OUTPUT COLLAPSES OUTPUT LOSS PANEL REGRESSIONS POLICY OPTIONS POLICY RESEARCH POLITICAL STABILITY POLITICAL TURMOIL POVERTY REDUCTION PRIVATE CAPITAL PRIVATE CAPITAL FLOW PRIVATE CAPITAL FLOWS PRIVATE INVESTMENT PRODUCTIVITY GROWTH PUBLIC GOOD PUBLIC INVESTMENT PUBLIC UTILITIES RAPID EXPANSION REAL ESTATE REAL GDP REAL GROWTH RATE REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES RECESSION REGRESSION ANALYSIS REGULATORY REFORM RELATIVE WEIGHTS RESERVE ACCUMULATION RESERVE CURRENCY RESERVE HOLDINGS ROBUSTNESS CHECK RULE OF LAW SERIAL CORRELATION SOCIAL COSTS STABLE ECONOMIC GROWTH STATISTICAL ANALYSIS STRUCTURAL BREAK STRUCTURAL CHANGE TRADE OPENNESS VALUE ADDED WEALTH WORLD DEVELOPMENT INDICATORS Aizenman, Joshua Pinto, Brian Sushko, Vladyslav Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5860 |
| description |
This paper examines how financial
expansion and contraction cycles affect the broader economy
through their impact on eight real economic sectors in a
panel of 28 countries over 1960-2005, paying particular
attention to large, or sharp, contractions and magnifying
and mitigating factors. Overall, the construction sector is
the most responsive to financial sector growth, with a
number of others -- such as government, public utilities,
and transportation -- also exhibiting significant
sensitivity to lagged financial sector growth. Sharp
fluctuations in the financial sector have asymmetric
effects, with the majority of real sectors adversely
affected by contractions but not helped by expansions. The
adverse effects of financial contractions are transmitted
almost exclusively by the financial openness channel with
foreign reserves mitigating these effects with a sizeable
(10 to 15 times greater) impact during sharp financial
contractions. Both effects are magnified during particularly
large financial contractions (with coefficients on
interaction terms two to three times greater than when all
contractions are considered). Consequent upon a financial
contraction, the most severe real sector contractions occur
in countries with high financial openness; relative
predominance of construction, manufacturing, and wholesale
and retail sectors; and low international reserves. Finally,
the analysis finds that abrupt financial contractions are
more likely to follow periods of accelerated growth,
indicative of "up by the stairs, down by the elevator dynamics." |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Aizenman, Joshua Pinto, Brian Sushko, Vladyslav |
| author_facet |
Aizenman, Joshua Pinto, Brian Sushko, Vladyslav |
| author_sort |
Aizenman, Joshua |
| title |
Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| title_short |
Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| title_full |
Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| title_fullStr |
Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| title_full_unstemmed |
Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help |
| title_sort |
financial sector ups and downs and the real sector : big hindrance, little help |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111026090001 http://hdl.handle.net/10986/3626 |
| _version_ |
1764387501244416000 |
| spelling |
okr-10986-36262021-04-23T14:02:11Z Financial Sector Ups and Downs and the Real Sector : Big Hindrance, Little Help Aizenman, Joshua Pinto, Brian Sushko, Vladyslav ABSOLUTE VALUE ACCOUNTING ADVANCED ECONOMIES ADVERSE EFFECT ADVERSE EFFECTS ADVERSE IMPACT AGGREGATE LEVEL AGRICULTURAL SECTOR AGRICULTURE ANNUAL GROWTH ANNUAL GROWTH RATE AVERAGE GROWTH AVERAGE GROWTH RATE AVERAGE LEVEL BALANCE SHEET BANK POLICY BANKING CRISES BANKING CRISIS BENCHMARK BOOM-BUST CYCLES BUFFER BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL ACCOUNT OPENNESS CAPITAL FLIGHT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY COLLATERAL COMPARATIVE ADVANTAGE CONTROL VARIABLE CONVERGENCE HYPOTHESIS CORRELATION COEFFICIENTS COUNTRY LEVEL CREDIT MARKETS CROSS-BORDER CAPITAL CUMULATIVE DISTRIBUTION CUMULATIVE DISTRIBUTION FUNCTION CURRENCY CURRENCY CRISES CURRENCY CRISIS DEBT DEFICITS DEFLATION DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT INDICATORS DEVELOPMENT POLICY DIMINISHING RETURNS DOMESTIC DEMAND DUMMY VARIABLES ECONOMIC CONTRACTIONS ECONOMIC CRISIS ECONOMIC DOWNTURNS ECONOMIC GROWTH ECONOMIC IMPACT ECONOMIC LITERATURE ECONOMIC SECTORS ECONOMICS LETTERS EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMPIRICAL ESTIMATES ERROR TERM ESTIMATION RESULTS EXOGENOUS VARIABLES EXPLANATORY VARIABLES EXPORTS EXPOSURE EXTERNAL FINANCE EXTERNAL FINANCING FINANCIAL ASSETS FINANCIAL CAPITAL FINANCIAL COLLATERAL FINANCIAL CRISIS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL OPENNESS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL SHOCK FINANCIAL SHOCKS FINANCIAL STABILITY FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIALLY OPEN ECONOMIES FIXED EFFECTS FOREIGN ASSETS FOREIGN CAPITAL FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVE FOREIGN EXCHANGE RESERVES FOREIGN RESERVES FUTURE RESEARCH GDP GDP PER CAPITA GLOBAL CURRENCY GLOBALIZATION GOVERNANCE INDICATORS GOVERNMENT EXPENDITURES GOVERNMENT SPENDING GROWTH RATE GROWTH RATES GROWTH THEORY HOLDING IMPORTS INCOME INFLATION INFLATION RATES INSURANCE INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL RESERVES INVESTMENT PROJECTS LAGGED GROWTH LAGGED VALUE LIBERALIZATION LIQUIDITY LIQUIDITY CRUNCH LONG-RUN GROWTH MACROECONOMICS MARGINAL EFFECT MARGINAL RETURNS MARKET LIQUIDITY MARKET VALUES MEAN GROWTH MONETARY FUND MORAL HAZARD MORTGAGE MORTGAGE LOANS NEGATIVE EFFECT NEGATIVE IMPACT NEOCLASSICAL GROWTH MODEL NORMAL DISTRIBUTION NULL HYPOTHESIS OPEN ECONOMIES OUTPUT OUTPUT COLLAPSES OUTPUT LOSS PANEL REGRESSIONS POLICY OPTIONS POLICY RESEARCH POLITICAL STABILITY POLITICAL TURMOIL POVERTY REDUCTION PRIVATE CAPITAL PRIVATE CAPITAL FLOW PRIVATE CAPITAL FLOWS PRIVATE INVESTMENT PRODUCTIVITY GROWTH PUBLIC GOOD PUBLIC INVESTMENT PUBLIC UTILITIES RAPID EXPANSION REAL ESTATE REAL GDP REAL GROWTH RATE REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES RECESSION REGRESSION ANALYSIS REGULATORY REFORM RELATIVE WEIGHTS RESERVE ACCUMULATION RESERVE CURRENCY RESERVE HOLDINGS ROBUSTNESS CHECK RULE OF LAW SERIAL CORRELATION SOCIAL COSTS STABLE ECONOMIC GROWTH STATISTICAL ANALYSIS STRUCTURAL BREAK STRUCTURAL CHANGE TRADE OPENNESS VALUE ADDED WEALTH WORLD DEVELOPMENT INDICATORS This paper examines how financial expansion and contraction cycles affect the broader economy through their impact on eight real economic sectors in a panel of 28 countries over 1960-2005, paying particular attention to large, or sharp, contractions and magnifying and mitigating factors. Overall, the construction sector is the most responsive to financial sector growth, with a number of others -- such as government, public utilities, and transportation -- also exhibiting significant sensitivity to lagged financial sector growth. Sharp fluctuations in the financial sector have asymmetric effects, with the majority of real sectors adversely affected by contractions but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively by the financial openness channel with foreign reserves mitigating these effects with a sizeable (10 to 15 times greater) impact during sharp financial contractions. Both effects are magnified during particularly large financial contractions (with coefficients on interaction terms two to three times greater than when all contractions are considered). Consequent upon a financial contraction, the most severe real sector contractions occur in countries with high financial openness; relative predominance of construction, manufacturing, and wholesale and retail sectors; and low international reserves. Finally, the analysis finds that abrupt financial contractions are more likely to follow periods of accelerated growth, indicative of "up by the stairs, down by the elevator dynamics." 2012-03-19T18:05:48Z 2012-03-19T18:05:48Z 2011-10-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111026090001 http://hdl.handle.net/10986/3626 English Policy Research working paper ; no. WPS 5860 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |