نوسانات صنعت بانکداری و رشد

In this paper, we provide evidence that banking industry volatility may exert a negative impact on growth in a more economically integrated world. By applying the augmented difference-in-difference framework of Rajan and Zingales (1998) to the cross-country cross-industry data developed by Ciccone and Papaioannou (2009), complemented by the Financial Development and Structure database of Beck et al. (2010), we show that over the 1980–1999 period the banking sector volatility, measured as the standard deviation of the growth of private credit, has a negative impact on the growth of industries that are more externally financially dependent, and this finding is robust to various sensitivity tests. However, the detrimental growth effect of banking sector volatility disappears when the sample is restricted to the relatively placid 1980s. Compared to the 1980s, the 1990s are characterized by a more economically integrated world accompanied by more often unpredicted financial crises that disturb the banking sector. As such, our results imply that in a more economically integrated world, the stability of bank development may be important to long-run growth.

This paper aims to empirically investigate the impact of banking industry volatility on long-run economic growth. Following the pioneering work of King and Levine, 1993a and King and Levine, 1993b, an enormous literature has been devoted to investigating the finance-growth nexus.1 By and large, this line of research generally concludes that the depth of financial markets and institutions, usually measured by the size of private credit relative to GDP, has a positive and significant effect on long-run growth. Further effort has also been made toward establishing that the causality goes effectively from financial to economic growth, but not the other way around, by analyzing industry- and firm-level data to clarify the mechanisms that are somewhat obscured in cross-country studies (Demirgüç-Kunt and Maksimovic, 2002 and Rajan and Zingales, 1998). However, along the process of financial development, which entails a deepening of markets and services that channel savings to productive investments, allow risk diversification and thus possibly lead to higher economic growth in the long run, the same process can also present weaknesses as evidenced by systemic banking crises, cycles of booms and busts, and overall financial volatility. Whether intrinsic to the process of development or induced by policy mistakes or external shocks, these elements of financial volatility (or fragility) can hurt economic growth (Loayza and Rancière, 2006). Nevertheless, this speculation is barely examined in the finance-growth nexus literature. On the other hand, in the last few decades, volatility has become an independent field of inquiry in macroeconomics, moving on from a second-order research area to currently ‘occupy a central position in development economics’ (Aizenman and Pinto, 2005). What brings volatility into this prominence are the cross-country studies that follow the seminal paper of Ramey and Ramey (1995) in examining the negative impact of volatility on growth, and the growth literature that includes volatility based on the endogenous growth theory. As to the role of the financial sector in this stream of the literature, recent theoretical works tend to illustrate the negative relationship between volatility and growth via the channel of financial frictions, e.g., Kharroubi (2007), Aysan (2007) and Aghion et al. (2010), just to name a few.2 Empirically, most of the previous studies that investigate the negative relationship between volatility and growth have focused on debating the relative importance of macroeconomic policy volatility versus institutional uncertainty to the process of economic development, e.g., Aizenman and Marion, 1993, Aizenman and Marion, 1999, Brunetti and Weder, 1998, Acemoglu et al., 2003, Campos and Nugent, 2003, Easterly, 2005, Hnatkovska and Loayza, 2005 and Loayza et al., 2007, just to mention a few. By contrast, recent efforts have been directed toward understanding the factors, such as a well-developed financial sector and institutional strength, that help mitigate the negative effect of volatility, e.g., Aghion et al., 2009, Aghion et al., 2010 and Fatás and Mihov, 2006. However, since the financial system may even propagate economic variability or create risk of its own, rather than treating the financial sector as a channel for mediating with other volatility, it would be more interesting to investigate the direct impact of volatility that originated from the financial sector on economic growth. However, through what mechanism can the volatility in the financial sector affect real economic activity? Based on an asymmetric information theory of financial instability, Mishkin (1998) summarizes four categories of fundamental factors that lead to financial volatility (or instability): an increase in interest rates, increases in uncertainty due to recession or political instability, the asset market effect on nonfinancial firms’ balance sheets, and problems in the banking sector. Generally speaking, asymmetric information between lenders and borrowers leads to two basic problems in the financial system: adverse selection and moral hazard. Specifically, rising interest rates and uncertainty will worsen the problems of adverse selection as well as moral hazard and consequently drive up the possibility of lending leading to bad credit. Under such circumstances, lenders will want to make fewer loans, possibly leading to a sharp decline in lending that will result in a substantial decline in investment and aggregate economic activity. On the other hand, the decline in net worth as a result of a stock market decline makes lenders less willing to lend because the net worth of firms serves a similar role to collateral, and when the value of the collateral declines, it provides less protection to lenders so that losses from loans are likely to be more severe.3 As to the problems in the banking sector, banks have a very important role to play in financial markets since they are well suited to engage in information-producing activities that facilitate productive investment for the economy. Thus, a decline in the ability of banks to engage in financial intermediaries and make loans will lead directly to a decline in investment and aggregate economic activity. From the above analysis, one can see that financial instability occurs when shocks to the financial system interfere with information flows so that the financial system can no longer do its job of channeling funds to those with productive investment opportunities and hence is likely to result in a contraction of output. As such, in this paper, we will revisit the question about the role of the financial sector in economic growth by extending the set of variables that characterize the process of financial development. In contrast to most of the previous empirical studies that only use the size of the banking system, such as the ratio of private credit to GDP, as a regressor to predict growth performance, we additionally consider the volatility in the banking sector, measured by the standard deviation of the growth of private credit, and argue that it can also be a key characteristic of the financial sector that matters for long-term economic performance, especially in a more economically integrated world. Moreover, while much of the existing research relies on cross-country analysis to identify volatility as an impediment to growth, it is of interest to present complementary evidence that is derived from more disaggregated data. In addition, as the financial system may even propagate economic variability or create risk of its own, it would be more reasonable to treat the financial sector as the source of volatility rather than a channel for mediating with other volatility. For the reasons presented above, in this study, we particularly focus on the impacts of banking sector volatility on growth by employing the difference-in-difference approach of Rajan and Zingales (1998, thereafter RZ) to cross-country and cross-industry data, which are mainly obtained from Ciccone and Papaioannou (2009) and complemented by the Financial Development and Structure Database constructed and recently updated by Beck et al. (2010). Our empirical analysis for the 1980-1999 period reveals that when adding the interaction of banking industry volatility and industrial external finance to the original RZ specification, the positive effect of bank development on sectoral growth via the channel of industry external finance is attenuated. However, volatility in the banking system does exert a significantly negative impact on the growth of those industries that are more externally financially dependent. Moreover, this result is robust to various determinants of growth controlled, different measures of stock market development considered, alternative measures of financial volatility employed, and other macroeconomic volatilities incorporated. However, as the sample is restricted to the relatively placid 1980s, we find that the negative impact of banking industry volatility is not statistically significant, while bank development continues to exert a positive growth effect as suggested by the previous literature. How do we reconcile these seemingly inconsistent outcomes? Compared to the 1980s, the 1990s were characterized by increasing international capital flows, especially for those capital flows to developing countries, thus making the economies around the world more integrated and also more often accompanied by unpredicted financial crises which made the global financial markets more turbulent. As a result, the major message emerging from our research is that as the world is becoming more and more economically integrated, the stable development of the banking sector may be important to determine long-run economic growth. This finding complements the earlier literature in two respects. First, it extends the literature on the finance-growth nexus by additionally considering the volatility of the banking sector as an important factor in determining long-run economic growth. Second, it contributes to the volatility-growth literature by confirming the possible detrimental effect of banking industry volatility on growth using a cross-country cross-industry data set. The rest of this paper is structured as follows. Section 2 presents our empirical models, which extend from the difference-in-difference methodology introduced by Rajan and Zingales (1998), to assess the causal effect of banking sector volatility on growth. In particular, we add an interaction of a measure of industry-level external financial dependence and a country-level indicator of banking industry volatility to an otherwise standard RZ specification. Section 3 explains the data sources and the construction of relevant variables. Section 4 presents our main results. Section 5 provides some robustness checks. Lastly, Section 6 concludes.

Most of the existing literature studying the relationship between the financial sector and economic growth has focused on the impacts of bank development or the structure of the financial sector on economic growth. However, as the banking system can be one of the sources of volatility by propagating economic variability or creating risk of its own, which may defer the investment decision and thus potential growth, it would be interesting to further investigate the role of banking industry volatility in long-run economic growth. To cope with this concern, we employ the framework of Rajan and Zingales (1998) by additionally considering an interaction term of country-level banking sector volatility and industry reliance on external finance. The data used consist of the cross-country cross-industry data constructed by Ciccone and Papaioannou (2009), complemented by the Financial Development and Structure Database of Beck et al. (2010). Our benchmark result for the 1980–1999 period shows that the positive effect of bank development, measured as the relative size of domestic private credit to GDP, on sectoral growth via the channel of industry external finance is attenuated when banking sector volatility is considered. On the other hand, volatility in the banking sector, measured as the standard deviation of the growth of private credit, has a significant negative impact on the growth of industries that are more externally financially dependent. This finding is robust to various determinants of growth controlled, different indices of stock market development considered, alternative measures of banking industry volatility employed, and other macroeconomic volatilities incorporated. However, when we restrict the sample to the relatively placid 1980s, the negative impact of banking industry volatility is not statistically significant while bank development still exerts a positive growth effect as suggested by the previous literature. Our interpretation of these seemingly conflicting results is as follows. Compared to the 1980s, the 1990s are characterized by a more economically integrated world more often accompanied by unpredicted financial crises that disturb the banking sector. As a result, the outcome of no significant effect of banking industry volatility on industrial growth in the 1980s may imply that the main result of the negative impact of banking industry volatility on industrial growth for the 1980–1999 period may be driven by the financial crises resulting from more integrated economies around the world in the 1990s As such, an implication that emerges from this research is that the policymakers should closely monitor the stability of bank development in a more and more economically integrated world to ensure long-run economic growth.