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.592.The role of financial globalization Appendix AThe impact of financial market crises on growthand inequality: An empirical assessmentThe purpose of this Appendix is to present baseline evidence of the link between financialcrisis and growth and financial crisis and inequality.This is done by means of panel regres-sions estimated by FGLS using five eight-year non-overlapping windows for the period1960-2006.The sample used in the regressions consists of 127 countries in the analysisof economic growth and 105 countries in the case of inequality.The difference in thenumber of countries taken into account by both regressions is explained by the difficultyin finding information on inequality for all countries for the period studied.The methodology employed is similar to that presented in Rancière et al.(2008), butadding an equation to test for the effect of banking crisis on inequality.The followingequations have been estimated:(1) ”Yit = ³Xit + ²1 ¼ ”B,it + ²2 Ã ”B,it + ²3 sk ”B,it + µit(2) Git = ³Xit + ²1 ¼ ”B,it + ²2 Ã ”B,it + ²3 sk ”B,it + µitGrowth (”Yit) is measured by the average growth rate of per-capita GDP and inequality(Git) by the Gini coefficient (expressed in logs).Regarding the explanatory variables, thethree moments of credit growth: the mean (¼ ”B,it), the standard deviation (Ã ”B,it), and theskewness (sk ”B,it), are used as a measure of financial development and financial crisis.TheTable 2.A1.Definitions and Sources of Variables used in the Regression AnalysisVariable Definition SourceGDP per capita growth Annual growth rate.World Development Indicators (2007).Gini coefficients World Development Indicators (2007).Initial GDP per capita Initial value of ratio of total GDP to total World Development Indicators (2007).population (in logs).GDP is in 2000 constantUS$.Initial secondary schooling Ratio of total secondary enrolment, regardless World Development Indicators (2007).of age, to the population of the age group thatofficially corresponds to that level of education.Expressed in logs.CPI Consumer price index Consumer price index (2000 = 100) at the end IFS data line 64 ZF and 64 XZF.of the year.Real credit growth Annual growth rate of real domestic bank credit Institute calculations based on dataclaims on the private sector.from IFS line 22: Claims on PrivateSector.Domestic bank credit claims aredeflated with end of the year CPI index.Government consumption General government final consumption World Development Indicators (2007).expenditure as a % of GDP.Expressed in logs.Inflation rate Annual % change in CPI.World Development Indicators (2007).Trade openness Trade (Exports + Imports) as a % of GDP.World Development Indicators (2007).60World of Work Report 2008: Income Inequalities in the Age of Financial Globalization Table 2.A2.Regression resultsBaseline regression Reduced sample Weighted regression Outlier controlGDP per Gini GDP per Gini GDP per Gini GDP per Ginicapita (log) capita (log) capita (log) capita (log)growth growth growth growthBank credit growth 0.079 1.2E-03 0.079 1.2E-03 0.026 6.9E-04 0.123 7.5E-04(26.40)** (27.55)** (26.40)** (27.55)** (9.25)** (12.37)** (50.80)** (7.33)**Bank credit variance -0.021 -1.2E-03 -0.021 -1.2E-03 0.005 -3.0E-04 -0.035 -1.6E-03(-20.74)** (-41.00)** (-20.74)** (-41.00)** (2.13)* (-4.24)** (-36.95)** (-20.16)**Bank credit -0.183 -4.4E-03 -0.183 -4.4E-03 -0.134 -2.2E-02 -0.244 -4.6E-03skewness(-5.35)** (-2.64)** (-5.35)** (-2.64)** (-3.28)** (-10.41)** (-7.90)** (-2.63)**Initial level of GDP -0.662 3.3E-02 -0.662 3.3E-02 -1.53 -4.7E-03 -0.447 2.9E-02per capita(-10.94)** (14.70)** (-10.94)** (14.70)** (-16.83)** (-2.18)* (-8.59)** (9.22)**Initial level of 0.032 3.2E-02 2.9E-02 2.7E-02secondary schooling(13.27)** (13.27)** (8.85)** (18.15)**Inflation -0.003 1.6E-05 -0.003 1.6E-05 -0.004 -5.4E-05 -0.002 7.7E-06rate(-32.98)** (3.79)** (-32.98)** (3.79)** (-10.46)** (-11.06)** (-13.85)** (1.12)Government -1.39 -0.032 -1.39 -0.0322 -1.102 -0.190 -0.799 -2.1E-02consumption(-13.63)** (-8.09)** (13.63)** (-8.09)** (-7.34)** (-32.46)** (-11.18)** (-3.02)**Trade openness 0.018 -1.2E-04 0.018 -1.2E-04 0.013 -1.0E-03 0.011 8.1E-05(14.30)** (-3.70)** (14.30)** (-3.70)** (10.64)** (-32.94)** (12.75)** (2.24)*Constant 6.33 3.46 5.88 3.39 13.42 4.08 4.81 3.33(13.72)** (408.28)** (13.10)** (212.42)** (19.92)** (209.57)** (13.16)** (92.33)**Observations 559 236 559 236 559 236 509 223Number of countries 146 102 146 102 146 102 135 96Note: Estimated based on feasible generalized least squares.All regressions are controlled for regional-fixed effects.Absolute value of z statistics inparentheses.The error terms are corrected for heteroskedasticity and autocorrelation.Significance levels: * significant at 5%; ** significant at 1%.Source: IILS estimatesvariable used for this purpose is the growth rate of real bank credit to the private sector.Finally, Xit is a vector of control variables and µit is the error term.In this analysis, thecontrol set used includes initial per-capita GDP (in logs), the initial ratio of secondaryschooling, the inflation rate, the ratio of government consumption as a percentage of GDP(in logs) and a measure of trade openness (X+M / GDP).An overview of the different vari-ables used and their sources and definitions can be found in table 2.A.1
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