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The Finance–Growth Link in Latin America


  • Luisa Blanco

    () (Pepperdine University, School of Public Policy, 24255 Pacific Coast Highway, Malibu, CA 90263-7691, USA)


This paper analyzes the relationship between financial development and economic growth in Latin America with a Granger causality test and impulse response functions in a panel vector autoregression (VAR) model. With annual observations from a sample of 18 countries from 1962 to 2005, it is shown that while economic growth causes financial development, financial development does not cause economic growth. This finding is robust to different model specifications and different financial indicators. Interestingly, when the sample is divided according to different income levels and institutional quality, there is two-way causality between financial development and economic growth only for the middle income group and for countries with stronger rule of law and creditor rights. The impulse response functions show that a shock to financial development has a positive impact on economic growth only for these subsamples, but the net effect of financial development on growth is relatively small.

Suggested Citation

  • Luisa Blanco, 2009. "The Finance–Growth Link in Latin America," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 224-248, July.
  • Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:224-248

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    Cited by:

    1. repec:eee:jebusi:v:96:y:2018:i:c:p:42-58 is not listed on IDEAS
    2. repec:bla:sajeco:v:85:y:2017:i:1:p:86-97 is not listed on IDEAS
    3. Alimi, R. Santos, 2014. "DOLS Cointegration Vector Estimation of the Effect of Inflation and Financial Deepening on Output Growth in Nigeria," MPRA Paper 57182, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean


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