Finance and European regional economy

This study computes banking risk indexes for European developing countries and analyses the impact of identified risk factors on economic growth across regions and cities. We examine the short-run and long-run behaviours of the series. The results reveal that real gross domestic product (RGDP) per capita co-moves with banking risk. We find that about 17% of focal regions suffer significantly from banking risk shocks. The effect ranges from 0.1% to 0.7%, with a lower magnitude for cities. Banking risk has the most detrimental effects in Russia. Short- and long-run decrements in RGDP range between 0.2% and 0.3% across the panel.