Financial resilience and growth in the EU: Rethinking the financial divide
We focus on the debate of the "disappearing" empirical link between finance and growth and address the issue of the features of financial development that ensure stable and long-lasting economic growth. We build the Financial Resilience Index, a composite measure intended to capture the characteristics of openness, financial structure and stability of financial systems. We then analyse the impact of financial resilience on economic growth for the EU28 over 2005-2017, employing the GMM technique estimator to address the endogeneity concerns of the finance-growth nexus. We compare our result with those obtained using standard financial development indicators. In a second step, we employ the Phillips and Sul (2007) methodology to identify convergence clubs for financial resilience across the EU and analyse if belonging to the high or low resilience clubs impacts on the relationship between financial development and economic growth.