The Finance-Growth Link in Latin America Revisited and the Role of Institutions as a Source of Finance

Posted: 6 Sep 2010

See all articles by Luisa R. Blanco

Luisa R. Blanco

Pepperdine University School of Public Policy

Date Written: September 6, 2010

Abstract

In a panel framework that includes 18 countries, this paper studies the short and long run effect of financial development on economic growth and the determinants of financial development in Latin America. Financial development shows a positive effect on economic growth in the long run, but a negative effect in the short run for the full sample. When the sample is divided by income levels, this result holds only for the high income group. For the low income group, financial development has no significant effect on economic growth in the short run or in the long run. In the analysis of the determinants of financial development in Latin America, greater financial liberalization and lower country risk are associated with higher levels of financial development. From the components of the country risk index (financial, economic, and political risk indices) only the political risk index comes up positively significant. From the components of the political risk index, only law and order and government stability have a positive significant effect on financial development.

Keywords: Financial development, economic growth, institutions, political stability, Latin America

JEL Classification: G21, O16, O43, O54

Suggested Citation

Blanco, Luisa R., The Finance-Growth Link in Latin America Revisited and the Role of Institutions as a Source of Finance (September 6, 2010). Available at SSRN: https://ssrn.com/abstract=1672839

Luisa R. Blanco (Contact Author)

Pepperdine University School of Public Policy ( email )

24255 Pacific Coast Highway
Malibu, CA 90263
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
470
PlumX Metrics