<p>Interestingly, <a href="http://eml.berkeley.edu/~dromer/papers/RomerandRomerFinancialCrises.pdf" rel="nofollow">Romer and Romer (2014)</a> show that financial crises are typically <em>not</em> causing major downfalls in economic activity, if you restrict your sample onto the developed countries post WWII.</p>

<p>An advantage of their method is that they look at a real time narrative, so they don't try to judge ex-post what was a crises. So historians <em>winner writes history</em> criticism doesn't apply here.</p>

<p>It is certainly worse if the financial crises is global, but that's pretty infrequent.</p>

CC BY-SA 3.0
2015-04-07T11:32:36.223Z
Indeed a nice research, I am just reading it now. Note that it covers the period 1967-2007, leaving the recent most significant global crisis outside of the research scope.
Ziezi
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2015-04-07T12:11:28.013Z
@simplicisveritatis Sure, thats why I said *typically*. If they typically don't, but did this time, there must be something specific to this time, such as size and/or correlation among countries. But since you were into frequent causes - we don't have frequent large size financial crises.
FooBar
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2015-04-07T12:36:24.017Z
I accept and appreciate your answer, (I would up voted it as it covers 90% of the first point) just made a comment, rather than critique . Regarding the frequency, we surely don't have great amount of large financial crises, however, we have 196 countries which provides us with enough data to establish a relationship between any of the 4 points in the OP and the country-specific economic state.
Ziezi
CC BY-SA 3.0
2015-04-07T11:21:39.923Z
2015-04-07T12:13:07.393Z
2015-04-07T12:13:07.393Z
FooBar
<p>In retrospect what are the major parameters, most frequently causing countries' economy to reduce its size and/or growth.</p>

<ol>
<li>Global Financial Crisis?</li>
<li>Regional instability?</li>
<li>Local Banking Sector failure?</li>
<li>Long-term inefficient governmental fiscal, civil, law policies, corruption?</li>
</ol>

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2015-04-07T09:51:43.903Z
Cross-posted: http://history.stackexchange.com/questions/21203/the-most-frequent-causes-of-economic-downfall
Konstantinos
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2015-04-07T10:23:37.137Z
@ pidosaurus It is on hold and I am following the suggestion of @semaphore. Check last comment under the post.
Ziezi
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2015-04-07T10:25:50.040Z
@pidosaurus Couldn't the question be viewed  in  both Historical and Economics scope?
Ziezi
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2015-04-07T11:08:29.003Z
Obviously, I just mention it in a non-judgemental way. :)
Konstantinos
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2015-04-07T11:24:04.313Z
I think one could post regarding to some of the aspects, so I dropped sth. regarding to 1). Btw, is there a reason why 3) should be bad independently of 1)? I mean, can a banking sector failure cause a recession without causing a financial crises? Or is 3) just 1) without the word *global*
FooBar
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2015-04-07T11:24:16.660Z
@pidosaurus My apologies if my response seemed judgemental :)
Ziezi
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2015-04-07T11:28:23.367Z
@ FooBar I see what you mean, there is a possible causal relation or some kind of correlation between Banking Sector failure global crises and country financial crises. I am updating it to local banking sector, to refer to the country intrinsic banking system.
Ziezi
CC BY-SA 3.0
2015-04-07T12:13:42.993Z
"Downfall" is a word with a _permanent_ flavor. Are you asking about what are the major contributing factors to the phenomenon where a country once had a strong economy, but then it declined and it appears that it won't rise again (we are spanning _at least_ decades here), OR about the phenomenon of "business cycles" and why some of the low points of the cycle turned into "crises" going "lower than usual" and lasting "longer than usual" -but not in a "permanent-decades-long" sense?
Alecos Papadopoulos
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2015-04-07T12:46:30.430Z
Also, are you interested in all countries, or advanced, or developing? Due to different institutions, the reasons will be different.
FooBar
CC BY-SA 3.0
2015-04-07T13:03:35.200Z
@FooBar Northern Hemisphere (with the only exculsion of South America)(126 cuntries in total) advanced and developing countries are of primary interest
Ziezi
CC BY-SA 3.0
2015-04-07T14:45:59.110Z
@Alecos Papadopoulos the former in your question. I am generalizing to avoid idiosyncrasy and bias.
Ziezi
CC BY-SA 3.0
2015-04-07T22:31:08.223Z
You may want to add invasion by another country/civil war unrest to this list. Revolutions inspired by badly grounded economic theories also deserve a mention.
Lumi
<macroeconomics><financial-crises>
The most frequent causes of economic downfall?
Ziezi
# The most frequent causes of economic downfall?

(Asked by: username_0 on 2015-04-07)

In retrospect what are the major parameters, most frequently causing countries' economy to reduce its size and/or growth.

1. Global Financial Crisis?
2. Regional instability?
3. Local Banking Sector failure?
4. Long-term inefficient governmental fiscal, civil, law policies, corruption?

**Tags:** macroeconomics, financial-crises
> **Comments:**
> **username_1**: Cross-posted: http://history.stackexchange.com/questions/21203/the-most-frequent-causes-of-economic-downfall  
> **username_0**: @ pidosaurus It is on hold and I am following the suggestion of @semaphore. Check last comment under the post.  
> **username_0**: @pidosaurus Couldn't the question be viewed  in  both Historical and Economics scope?  
> **username_1**: Obviously, I just mention it in a non-judgemental way. :)  
> **username_2**: I think one could post regarding to some of the aspects, so I dropped sth. regarding to 1). Btw, is there a reason why 3) should be bad independently of 1)? I mean, can a banking sector failure cause a recession without causing a financial crises? Or is 3) just 1) without the word *global*  
> **username_0**: @pidosaurus My apologies if my response seemed judgemental :)  
> **username_0**: @ FooBar I see what you mean, there is a possible causal relation or some kind of correlation between Banking Sector failure global crises and country financial crises. I am updating it to local banking sector, to refer to the country intrinsic banking system.  
> **username_3**: "Downfall" is a word with a _permanent_ flavor. Are you asking about what are the major contributing factors to the phenomenon where a country once had a strong economy, but then it declined and it appears that it won't rise again (we are spanning _at least_ decades here), OR about the phenomenon of "business cycles" and why some of the low points of the cycle turned into "crises" going "lower than usual" and lasting "longer than usual" -but not in a "permanent-decades-long" sense?  
> **username_2**: Also, are you interested in all countries, or advanced, or developing? Due to different institutions, the reasons will be different.  
> **username_0**: @FooBar Northern Hemisphere (with the only exculsion of South America)(126 cuntries in total) advanced and developing countries are of primary interest  
> **username_0**: @Alecos Papadopoulos the former in your question. I am generalizing to avoid idiosyncrasy and bias.  
> **username_4**: You may want to add invasion by another country/civil war unrest to this list. Revolutions inspired by badly grounded economic theories also deserve a mention.  

---

## 1 answers

### Answer by username_2 on 2015-04-07. Score: 1 | Accepted answer

Interestingly, [Romer and Romer (2014)](http://eml.berkeley.edu/~dromer/papers/RomerandRomerFinancialCrises.pdf) show that financial crises are typically *not* causing major downfalls in economic activity, if you restrict your sample onto the developed countries post WWII.

An advantage of their method is that they look at a real time narrative, so they don't try to judge ex-post what was a crises. So historians *winner writes history* criticism doesn't apply here.

It is certainly worse if the financial crises is global, but that's pretty infrequent.

> **Comments:**
> **username_0**: Indeed a nice research, I am just reading it now. Note that it covers the period 1967-2007, leaving the recent most significant global crisis outside of the research scope.  
> **username_2**: @simplicisveritatis Sure, thats why I said *typically*. If they typically don't, but did this time, there must be something specific to this time, such as size and/or correlation among countries. But since you were into frequent causes - we don't have frequent large size financial crises.  
> **username_0**: I accept and appreciate your answer, (I would up voted it as it covers 90% of the first point) just made a comment, rather than critique . Regarding the frequency, we surely don't have great amount of large financial crises, however, we have 196 countries which provides us with enough data to establish a relationship between any of the 4 points in the OP and the country-specific economic state.  

---

