Financial conditions and economic growth

John Nkwoma Inekwe, Yi Jin, Maria Rebecca Valenzuela

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper relates cross-country growth in real gross domestic product (RGDP) to ex-ante financial distress. For each of the 45 countries covered in the study, we first develop country indices of ex-ante financial distress from firm-level data and then employ an autoregressive model to examine the short and long-run implications of ex-ante financial distress on RGDP. The econometric analysis of over 590,000 firm-year observations over the period 1987–2011/2014 reveals that ex-ante financial distress has a strong negative relationship with growth in RGDP. In particular, we find that ex-ante financial distress lowers growth in RGDP in the short run and this effect persists in the long run. The short-run impact is valid across alternative weights used in the constructed country-level indices. In addition, a standard deviation increase in financial distress generates 0.11 standard deviation decrease in economic growth.
LanguageEnglish
Pages128 - 140
Number of pages13
JournalInternational Review of Economics and Finance
Volume61
DOIs
Publication statusPublished - May 2019

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Economic growth
Financial distress
Financial economics
Financial condition
Gross domestic product
Short-run
Standard deviation
Firm-level data
Autoregressive model
Econometric analysis

Keywords

  • Finance
  • Distress
  • Risk
  • Panel
  • Economic growth

Cite this

Inekwe, John Nkwoma ; Jin, Yi ; Valenzuela, Maria Rebecca. / Financial conditions and economic growth. In: International Review of Economics and Finance. 2019 ; Vol. 61. pp. 128 - 140.
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Financial conditions and economic growth. / Inekwe, John Nkwoma; Jin, Yi; Valenzuela, Maria Rebecca.

In: International Review of Economics and Finance, Vol. 61, 05.2019, p. 128 - 140.

Research output: Contribution to journalArticleResearchpeer-review

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