Capital Market Development, Frequency of Recession, and Fraction of Time the Economy in Recession

This paper investigates the effect of capital market development on the frequency of recession and the fraction of time the economy in recession using quarterly data of thirty-five countries from 1975 to 2004. The main finding is that frequency of recession is not robustly linked to measures of capital market development. However, the fraction of time the economy spends in recession is significantly related to capital market development. This implies that countries with more advanced capital market would tend to spend lower proportion of time in recession, though the marginal effect is small.