Banking Crises and Investments in Innovation

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Title: Banking Crises and Investments in Innovation
Authors: Peia, Oana
Permanent link: http://hdl.handle.net/10197/9101
Date: Dec-2017
Online since: 2017-12-12T17:40:48Z
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 composition of firm investment, by disproportionally decreasing investments in innovation. Thishypothesis 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.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Start page: 1
End page: 44
Series/Report no.: UCD Centre for Economic Research Working Paper Series; 2017/27
Copyright (published version): 2017 the Author
Keywords: Banking crisesR&D investmentFinancial dependenceGlobal games
JEL Codes: G01; G21; E22
Language: en
Status of Item: Not peer reviewed
This item is made available under a Creative Commons License: https://creativecommons.org/licenses/by-nc-nd/3.0/ie/
Appears in Collections:Economics Working Papers & Policy Papers

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