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Finance and Growth in Mexico: Who Contributes the Most: the Banks or the Stock Market?

Author

Listed:
  • Lizethe Méndez-Heras

    (Universidad Ecotec)

  • Francisco Venegas-Martínez

    (Instituto Politécnico Nacional)

  • Ricardo Solis

    (Universidad Autónoma Metropolitana-Unidad Iztapalapa)

Abstract

This paper studies the relationship between the financial structure and the economic growth of Mexico during 1980-2014. The literature identifies two types of financial structure: bank-based and stock-market-based. In the first, commercial banking positively impacts economic activity, while in the second, the stock market influences the performance of the economy. A third view considers that all financial activity (banks, stock market and other financial institutions) influences growth. These hypotheses are assessed by using a VEC model. The empirical findings suggest that, considering the liquidity of the financial system, stock market activity predominates throughout the study period; but when we take the size of the financial system, banking activity prevails. We also show that increasing financial system liquidity had a positive effect on economic growth, although increasing the size of the financial system decreased the GDP per capita over the period 1980-2014. Moreover, the short-term dynamic analysis reveals that if the financial structure became more marketed-oriented, the effect on economic growth would be positive.

Suggested Citation

  • Lizethe Méndez-Heras & Francisco Venegas-Martínez & Ricardo Solis, 2022. "Finance and Growth in Mexico: Who Contributes the Most: the Banks or the Stock Market?," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 96, pages 235-278, January-J.
    • Handle: RePEc:lde:journl:y:2022:i:96:p:235-278
    DOI: 10.17533/udea.le.n96a344224
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    References listed on IDEAS

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    1. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    2. Calderón Villarreal, Cuauhtémoc & Cuevas, Víctor M., 2019. "Crecimiento industrial y aumento de los precios de los bienes de consumo en México: un análisis econométrico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    3. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Keywords

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    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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