Financial Development and Output Growth in Developing Asia and Latin America: A Comparative Sectoral Analysis

38 Pages Posted: 2 Feb 2015 Last revised: 26 Feb 2015

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics; National Bureau of Economic Research (NBER)

Donghyun Park

Asian Development Bank - Economic Research

Yothin Jinjarak

Victoria University of Wellington - School of Economics & Finance

Date Written: January 2015

Abstract

We use data from the Groningen Growth and Development Centre (GGDC) database to perform preliminary empirical analysis of the interplay between quality and quantity of finance in accounting for the output growth of ten sectors. We review the existing literature and some salient open questions pertaining to the relationship between financial depth and output growth. Our analysis looks at the finance-growth nexus in 41 economies, including 11 East Asian and 9 Latin American economies for a comparison between two regions which are at similar income levels. We document large differences between the two regions in terms of the impact of financial depth on sectoral growth, and validate the negative impact of financial deepening on output growth in several sectors. Our results suggest that the impact of financial development on growth may be non-linear – i.e. it may promote growth only up to a point.

Suggested Citation

Aizenman, Joshua and Park, Donghyun and Jinjarak, Yothin, Financial Development and Output Growth in Developing Asia and Latin America: A Comparative Sectoral Analysis (January 2015). NBER Working Paper No. w20917. Available at SSRN: https://ssrn.com/abstract=2558969

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Yothin Jinjarak

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

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