TY  - JOUR
AU  - Ranciere,Romain
AU  - Tornell,Aaron
AU  - Westermann,Frank
TI  - Systemic Crises and Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11076
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11076
L1  - http://www.nber.org/papers/w11076.pdf
N1  - Author contact info:
Romain Ranciere
International Monetary Fund
Research Department, 9-612
700 19th Street NW
Washington, DC 20431
Tel: 202 6238675
E-Mail: romainranciere@gmail.com

Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu

Frank Westermann
Department of Economics
Rolandstr. 8
49069 Osnabrueck, Germany
E-Mail: Frank.Westermann@uni-osnabrueck.de
AB  - In this paper, we document the fact that countries that have experienced occasional financial crises have, on average, grown faster than countries with stable financial conditions. We measure the incidence of crisis with the skewness of credit growth, and find that it has a robust negative effect on GDP growth. This link coexists with the negative link between variance and growth typically found in the literature. To explain the link between crises and growth we present a model where contract enforce-ability problems generate borrowing constraints and impede growth.  In the set of financially liberalized countries with a moderate degree of contract enforceability, systemic risk-taking relaxes borrowing constraints and increases investment.  This leads to higher mean growth, but also to greater incidence of crises.  We find that the negative link between skewness and growth is indeed strongest in this set of countries, validating the restrictions imposed by the model's equilibrium.
ER  -