Financial stress and economic growth: The moderating role of trust

Makrychoriti, Panagiota; Pasiouras, Fotios; Tasiou, Menelaos

doi:10.1111/kykl.12285

Cited by 5 publications

(2 citation statements)

References 130 publications

(155 reference statements)

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“…Alexiou et al (2018) found that over the period 1998-2014, increased credit flows negatively affected 34 European and Commonwealth of Independent States economies while the significant positive effect of money supply on growth before the GFC is not confirmed for advanced economies in contrast to developing countries. Makrychoriti et al (2022) used a sample of EU countries over the period 2002-2020 and suggested that trust can influence the behaviour of economic agents and improve access to financing for both households and corporations. Therefore, trust could mitigate the negative impact of financial stress on economic growth.…”

Section: Literature Reviewmentioning

confidence: 99%

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

2023

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This article empirically explores the finance-growth relationship and the performance of the financial system measured by financial depth, accessibility, and efficiency of both financial sectors, that is, institutions and stock markets.It also examines the role of fiscal policy in conjunction with the performance of financial development during both normal and stress times. The data consists of a panel of 26 European Union countries over the period 1990-2020.The results show that during normal times, the finance-led growth relationship and the stock market are greatly important, while during stress times the relationship becomes insignificant. Interestingly, financial institutions are found to be more effective at promoting growth and there is clear evidence that a potentially dynamic positive effect of institutions to growth is absorbed by macroeconomic shocks. In addition, there is evidence for a threshold at a lower level compared to those previously identified in the literature. This latter finding can be attributed to different measures of financial institutions used and the impact of macroeconomic shocks. The inability of both financial sectors to enhance economic activity seems to exhibit persistence from the occurrence of the global financial crisis until the onset of the recent Covid-19 pandemic.

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Section: Literature Reviewmentioning

confidence: 99%

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

2023

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“…Second, their empirical strategy fails because it is unlikely to incorporate all possible causal growth determinants in their reduced form—unlike a macroeconomic growth model. Makrychoriti et al (2021) also skipped the theoretical modeling phase when they found that trust moderates the association between financial stress and economic growth. Unfortunately, they did not test the Zak and Knack (2001) model, so their finding is not useful to uncovering whether there is empirical evidence of a causal trust‐growth relationship.…”

Section: The Five Deadly Sins Of the Trust Literaturementioning

confidence: 99%

Trust plays no role in regional U.S. economic development—And five other problems with the trust literature

Forrester

Nowrasteh

2023

Kyklos

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Economists have developed a vast empirical literature on how cultural traits like generalized trust affect economic output. Much of this literature finds a positive causal relationship between measures of generalized trust, as gathered by international surveys, and economic output. However, the trust literature commits five deadly empirical and theoretical sins that undermine many of its findings. From the quality of the survey questions and responses to the paucity of theoretical models used to explain how trust affects economic outcomes to the radically different results from experimental evidence and others, the trust literature is riven with poor methods and bad data. Even so, applying common methods used in the trust literature to regional level analysis in the United States during the 1972–2018 period reveals no statistically significant correlation between economic output and trust. Given our lack of findings at the subnational level, we find further evidence to be skeptical of the trust literature.

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Social capital and the cost of bank equity: Cross-country evidence

Pasiouras

2022

Journal of Banking & Finance

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Financial stress and economic growth: The moderating role of trust

Cited by 5 publications

References 130 publications

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

Financial development, economic growth and the role of fiscal policy during normal and stress times: Evidence for 26 EU countries

Trust plays no role in regional U.S. economic development—And five other problems with the trust literature

Social capital and the cost of bank equity: Cross-country evidence

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