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Bank Stability and Economic Volatility in High-Income, Middle-Income and
Low-Income Countries
Lee Jie Xin
Supervisor: Dr. Hazman bin Samsudin
Bachelor of Economics (Natural Resources)
School of Social and Economic Development
In the case of persistent economic volatility, it is being that bank stability would make
an important role in determining in influences economic crisis. Therefore, this paper
examines the effect of bank stability on economic volatility in three categories of
country income: high-income, middle-income and low-income countries. By utilizing
two-stage least squares (2SLS) model and data ranging from 1998 to 2015, the issues
will be well address. The findings suggest that credit risk, lending decision,
misallocation of credit and default risk are very important in explaining economic
volatility through bank stability. Particularly in high-income countries, the bank stability
is likely to lower economic volatility. For middle-income countries, bank stability is
likely to induce higher the economic volatility. This is because middle-income countries
are more dependence on capital flow compared to high-income countries. For lowincome
countries, bank stability has no influence on economic volatility in the long
run. With this finding, policymakers in high-income and middle-income countries
should focus more on promoting bank stability as it will directly influence economic
volatility differ from low-income countries the primarily is not on promoting bank
stability but rather on other factors.
1449 | UMT UNDERGRADUATE RESEARCH DAY 2018