Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/184827
Authors: 
Peia, Oana
Year of Publication: 
2017
Series/Report no.: 
Working Paper Series 17/27
Abstract: 
This paper proposes a new channel to explain the medium- to long-term effects of banking crises on the real economy. It embeds a banking sector prone to runs in a stylized growth model to show that episodes of bank distress affect not only the volume, but also the com- position of firm investment, by disproportionally decreasing investments in innovation. This hypothesis is confirmed empirically employing industry-level data on R&D spending around 13 recent banking crises episodes. Using difference-in-difference identification strategies, I show that industries that depend more on external finance, in more bank-based economies, invest disproportionally less in R&D following systemic banking crises. These industries also have a lower share of R&D spending in total investment, suggesting a shift in the composition of investment that is specific to recessions following banking crises and not other business cycle recessions.
Subjects: 
banking crises
R&D investment
financial dependence
global games
JEL: 
G01
G21
E22
Document Type: 
Working Paper
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