Does a Financial Crisis Impair Corporate Innovation?

Mon, 01 Jan 2024 00:00:00 +0000

Research question and motivation: Why do financial crises leave such deep and protracted economic wounds, with crisis-stricken economies failing to revert to pre-crisis growth trends even a decade later? Imai and Sawada test one specific channel: that crisis-induced disruptions in financial intermediation impair firms’ ability to fund innovation projects, stalling technological progress and thereby pushing the economy onto a permanently lower growth path. They study this in the context of Japan’s 1997-1998 financial crisis, which featured a sharp decline in bank credit, the collapse of three major banks (Hokkaido Takushoku Bank, Long-Term Credit Bank, Nippon Credit Bank), and a failure to recover the pre-crisis growth trend. Laeven and Valencia (2020) estimate the crisis’s fiscal cost to Japanese taxpayers at 8.5% of GDP and its economic cost (GDP deviation from trend, 1997-2001) at 45% of GDP.

Masami Imai | Macro Paper Warehouse

Does a Financial Crisis Impair Corporate Innovation?