The Effects of Financial Innovation, Sustainable Development of the Stock Market, and Economic Growth in Mexico

In this article, we analyze the dynamic causal relationship between financial innovation, sustainable development of the stock market, and economic growth in Mexico for the period from 1990 to 2020. We utilize the AutoRegressive Distributed Lag (ARDL) bounds testing procedure and the Granger causality test to generate a model that determines the direction of causality among the variables. This model allows for the inclusion of explanatory variables to analyze dynamic relationships between them. To this end, financial innovation is incorporated into a trivariate model involving financial development and economic growth, creating a bidirectional causality model. Another advantage is that it provides consistent and efficient estimates even with small samples. Our results indicate that, overall, access to international financing has a more significant impact on the sustainable performance of Mexican companies compared to domestic financing. This effect is maximized when companies use financial resources to foster innovation, which acts as a key catalyst for sustainability. Furthermore, although direct government support is not statistically significant, the training and advisory services provided by the government facilitate a more efficient use of financing, promoting both sustainability and business innovation. These findings emphasize the importance of a strategic approach that combines diversified financing, innovation, and appropriate public policies to encourage a more competitive and sustainable business development in Mexico.