Short and long run growth effects of financial crises

Growth theory predicts that poor countries will grow faster than rich countries. Yet, growth in developing countries has been consistently lower than growth in developed countries. The poor economic performance of developing countries coincides with both long-lasting and short-lived financial crises. In this paper, we analyze to what extent financial crises can explain low growth rates in developing countries. We distinguish between inflation, currency, banking, debt, and stock-market crises and separate the short- and long-run effects of them. Our results show that financial crises have reduced growth and that the policy decisions have caused them to be worsened and/or extended.