Banking crises and investments in innovation

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: UCD Centre for Economic Research Working Paper Series ; No. WP17/27

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Investment; Capital; Intangible Capital; Capacity
• Subject: banking crises ; R&D investment ; financial dependence ; global games

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Peia, Oana
• Event: Veröffentlichung
• (who): University College Dublin, UCD School of Economics
• (where): Dublin
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/184827
• Last update: 10.03.2025, 11:45 AM CET