4 of recessions and finish two quarters after these recessions end, the authors suggest that creditless recoveries in both emerging market and industrial countries are a feature of business cycles.<sup>3</sup> Focusing on 86 emerging and developing countries, Bijsterbosch and Dahlhaus (2011) discuss the characteristics and determinants of credit-less recoveries; in this respect, this paper is closer to the objectives of our own paper though it follows a somewhat different methodology. The paper uses annual data over the period of 1970–2009 and finds a total of 211 recoveries. Although several different definitions of credit-less recoveries—by measure (level or growth rate) and length (2 years or 3 years)—are suggested, the main specification identifies 50 creditless recoveries (i.e., around 24 percent of total recovery episodes). The authors show that the incidence of credit-less recoveries doubles after banking or currency crises and that recoveries are more likely to be credit-less if they are preceded by large declines in output and financial sector stress, as well as high credit-to-GDP ratios and large capital inflows. The study computes the predicted probabilities of credit-less recoveries in several EU12 countries and finds a wide variety in the likelihood of such recoveries (from 1 percent in Poland to 94 percent in Latvia).

A paper by analysts at UniCredit (2012) uses an unbalanced sample of 183 countries over the period of 1963–2010. The analysis shows that 19 percent of all recoveries are credit-less and that the percentage is increased to 50 percent after banking crises events. The paper also mentions that both demand factors (measured by output gap and investment growth) and supply factors (indicated by banking crisis and deleveraging) explain the incidence of credit-less events. It also computes probabilities of a credit-less recovery among emerging European countries and shows higher probabilities in the Baltic states and Ukraine. By decomposing the probability into demand and supply factors, it argues that the contribution of the former component is higher.

# _Industry-level data_

Coricelli and Roland (2011) look at industry-level data for 103 countries and 28 manufacturing sectors from the United Nations Industrial Development Organization (UNIDO) and employ two different criteria to define credit-less recoveries. The first one is the difference in credit-to-GDP ratios between the last and first year of a recovery (stock), and the other is the difference in growth rates of credit-to-GDP ratios between these two years (flow). They show that, during the period the study considered (1965–2002), 39 and 55 percent of the total number of recoveries are credit-less—following either a stock or a flow—and argue that recovery of credit “flow,” rather than “stock,” has a greater impact in the recovery of output. The authors find that faster recoveries are found in industries that are more dependent on external finance when the countries in question have high financial depth. They also conclude that industries that rely more on trade credit, which are typically less vulnerable to declines in bank credit, recover more quickly.

Using the same UNIDO data for 28 manufacturing sectors, Kannan (2012) tests the relationship between economic recoveries from financial crises and the dependence on external finance. The author uses quarterly GDP data over the period of 1970Q1 to 2004Q4 to identify business cycles in each country and then combines them to annual manufacturing data. The study focuses on 21

> 3 Claessens _et al_ . (2009a) identify possible drivers of credit-less recoveries; e.g., the contribution of consumption during the recovery, availability of alternative financing sources (e.g., external finance), and the switch to less credit-intensive sectors.