This paper provides empirical evidence that political institutions significantly influence the impact of financial crises on long-term growth. After accounting for country-specific effects and endogeneity, political institutions affect growth through their interaction with crises. The results suggest that only countries with strong democracies, high levels of political competition, and external constraints on government can potentially benefit from crises and use them to enhance long-term output per capita and productivity growth. The study uses a dynamic panel growth regression model to assess how various political institutions affect the impact of financial crises on long-term growth. The findings show that stronger democratic institutions can greatly mitigate the negative effects of crises on long-term growth, while autocratic governments typically amplify the negative outcome of crises. These results are closely linked to how decisions are made during crises, as evidenced by the fact that higher levels of government constraints also have a positive impact on growth through their interaction with crises. Additionally, more regulated political participation has similar beneficial effects. The main policy implication is that countries with solid democratic institutions and stronger checks-and-balances may welcome crises as opportunities to enhance growth, but countries with weak political institutions should try to avoid them. A more subtle but equally important implication is that the commonly held moral-hazard view, which maintains that countries should suffer crises to learn from their mistakes, might be a misleading policy prescription if the role of political institutions is ignored. The paper compares its results with the literature and provides intuition on a possible theoretical framework. It presents data and estimation methodology, shows main empirical results and robustness tests, and discusses issues of endogeneity. The study concludes that political institutions play a key role during times of crisis, and that democratic institutions are more likely to lead to better policy responses and long-term growth. The results also suggest that political reforms are important prerequisites for any economic reform that increases the likelihood of crises.This paper provides empirical evidence that political institutions significantly influence the impact of financial crises on long-term growth. After accounting for country-specific effects and endogeneity, political institutions affect growth through their interaction with crises. The results suggest that only countries with strong democracies, high levels of political competition, and external constraints on government can potentially benefit from crises and use them to enhance long-term output per capita and productivity growth. The study uses a dynamic panel growth regression model to assess how various political institutions affect the impact of financial crises on long-term growth. The findings show that stronger democratic institutions can greatly mitigate the negative effects of crises on long-term growth, while autocratic governments typically amplify the negative outcome of crises. These results are closely linked to how decisions are made during crises, as evidenced by the fact that higher levels of government constraints also have a positive impact on growth through their interaction with crises. Additionally, more regulated political participation has similar beneficial effects. The main policy implication is that countries with solid democratic institutions and stronger checks-and-balances may welcome crises as opportunities to enhance growth, but countries with weak political institutions should try to avoid them. A more subtle but equally important implication is that the commonly held moral-hazard view, which maintains that countries should suffer crises to learn from their mistakes, might be a misleading policy prescription if the role of political institutions is ignored. The paper compares its results with the literature and provides intuition on a possible theoretical framework. It presents data and estimation methodology, shows main empirical results and robustness tests, and discusses issues of endogeneity. The study concludes that political institutions play a key role during times of crisis, and that democratic institutions are more likely to lead to better policy responses and long-term growth. The results also suggest that political reforms are important prerequisites for any economic reform that increases the likelihood of crises.