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Industrial structure and the probability of crisis: Stability is not resilience *
Author(s) -
Lee Dongyeol,
Lim Hyunjoon
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1658
Subject(s) - deindustrialization , vulnerability (computing) , economics , financial crisis , psychological resilience , linkage (software) , resilience (materials science) , service (business) , tertiary sector of the economy , monetary economics , macroeconomics , economy , psychology , biochemistry , chemistry , physics , computer security , computer science , gene , psychotherapist , thermodynamics
We utilize country‐level data to investigate the empirical linkage between an economy's industrial structure and the probability of a banking crisis. This paper shows that a higher share of the service sector tends to significantly increase the risk of a banking crisis. We also explore the potential channels through which the industrial structure may affect an economy's vulnerability to external shocks. The result of the analysis suggests that a higher share of the service sector substantially increases vulnerability to a banking crisis through deterioration in profits and worsening of the current account balance. Our study provides some implications for the recent acceleration of deindustrialization in several emerging and advanced economies: for example, the industrial policy should call for a more cautious approach to reduce the potential risks of deindustrialization (increase in crisis vulnerability).