Discussion Paper

No. 2013-39 | August 05, 2013
Good Governance Problems and Recent Financial Crises in Some EU Countries

Abstract

This study examines 147 banking crises in the period of 19762011 documented by the International Monetary Fund. The countries affected by crises are analysed in respect of publicly available World Bank indicators in the periods of three years before the crises. Machine learning methodology for subgroup discovery is used for the analysis. It enabled identification of five subsets of crises. Two of them are identified as especially useful for the characterization of EU countries affected by the banking crises in the year 2008. Fast growing credit activity is a characteristic for the first subgroup while socioeconomic problems recognized by non-increasing quality of public health are decisive for the second subgroup. Comparative analysis of the EU countries included into the second subgroup and the EU countries affected by the banking crises but not included into this subgroup demonstrated statistically significant differences in respect of World Bank good governance indicator values for the period before the crisis. Control of corruption, rule of law, and government effectiveness are the indicators that are statistically different for these sets of countries. The result is fully in accordance with the Francis’s model connecting governance indicators and financial fragility. The significance of the result is in the segmentation of the corpus of countries with banking crises and recognition of connections between banking crises, socioeconomic problems, and governance effectiveness in some EU countries. The conclusions of the study might be useful for the policy makers in stressing that future banking crises prevention should also focus on governance effectiveness, more strict law implementation and especially on measures against corruption.

The authors present the methodology and the results of their paper in the talk now available as a video:

http://videolectures.net/ktsymposium2013_gamberger_modeling/ 

Data Set

Data sets for articles published in "Economics" are available at Dataverse. Please have a look at our repository.

The data set for this article can be found at: http://hdl.handle.net/1902.1/22044

JEL Classification

C63 E01 H11 J00

Cite As

Dragan Gamberger and Tomislav Smuc (2013). Good Governance Problems and Recent Financial Crises in Some EU Countries. Economics Discussion Papers, No 2013-39, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-39

Assessment



Comments and Questions


Anonymous - Invited Reader Comment
September 05, 2013 - 08:27

see attached file


Anonymous - Referee Report 1
September 11, 2013 - 08:07

I like the paper as it discusses characteristics of countries facing banking crises in a novel approach. However, some explanations can be improved. In particular:

1) Explain more clearly the link between the results from this paper and the Francis paper.
2) The other main point is to expand ...[more]

... a bit on the possible reasons behind some of the results. For instance, why is credit particularly bad when the population is aging (this is not the only instance in which some discussion of possible reasons is needed but it serves as an example). I am not asking to establish causality but at least to propose some possible explanations that can rationalize these results.


Dragan Gamberger - Reply to Referee Report 1
October 01, 2013 - 08:39

see attached file


Anonymous - Referee Report 2
September 23, 2013 - 09:28

see attached file


Dragan Gamberger - Reply to Referee Report 2
October 01, 2013 - 08:40

see attached file