Latin American Financial Development in Perspective

Banco de Espana, Servicios de Estudio Working Paper No. 0216

71 Pages Posted: 15 May 2003 Last revised: 4 Jan 2012

See all articles by Alicia García-Herrero

Alicia García-Herrero

Natixis ; BBVA Research; Bruegel

Javier Santillan Fraile

Banco de España

Sonsoles Gallego Herrero

Banco de España

Lucía Cuadro Sáez

Banco de España

Carlos Egea

European Central Bank (ECB)

Date Written: July 1, 2002

Abstract

This paper assesses financial sector development in Latin America, both in the banking system and in the capital markets. After a brief review of the explanatory factors and the definitions of financial development found in the literature, Latin American countries are classified in groups of similar characteristics by using cluster analysis - first worldwide and second within the region - in terms of financial depth and per capita income. In the worldwide exercise, virtually all Latin American countries appear in the same cluster, which argues in favor of a regional dimension in financial development. A comparison of the Asian and Eastern European emerging regions shows that Latin America lags behind Asia in terms of financial development and compares slightly unfavorably with Eastern Europe. In the regional cluster exercise, four relatively homogeneous groups of Latin American countries are found. Stylized facts of the four groups' banking sectors and capital markets show - in line with the results of the more recent economic literature - that those countries which have deeper financial systems are also those with a more efficient financial system. Although no conclusions on causality can be drawn from this review, it argues in favor of a virtuous circle, in terms of financial depth and efficiency, for countries with the most appropriate structure of the financial system.

Keywords: Financial development, Latin American financial systems, cluster analysis

JEL Classification: G1O, G20, C82

Suggested Citation

Garcia-Herrero, Alicia and Santillan Fraile, Javier and Gallego Herrero, Sonsoles and Cuadro Sáez, Lucía and Egea, Carlos, Latin American Financial Development in Perspective (July 1, 2002). Banco de Espana, Servicios de Estudio Working Paper No. 0216. Available at SSRN: https://ssrn.com/abstract=392700 or http://dx.doi.org/10.2139/ssrn.392700

BBVA Research ( email )

C/ Azul,4. Edificio La Vela. Planta 4
Madrid, 28050
Spain

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium
Belgium

Javier Santillan Fraile

Banco de España ( email )

Madrid 28014
Spain

Sonsoles Gallego Herrero

Banco de España ( email )

Madrid 28014
Spain

Lucía Cuadro Sáez

Banco de España ( email )

Madrid 28014
Spain

Carlos Egea

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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