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The Finance–Growth Link in Latin America

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  • Luisa Blanco

Abstract

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.

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  • Luisa Blanco, 2009. "The Finance–Growth Link in Latin America," Southern Economic Journal, John Wiley & Sons, vol. 76(1), pages 224-248, July.
    • Handle: RePEc:wly:soecon:v:76:y:2009:i:1:p:224-248
    DOI: 10.4284/sej.2009.76.1.224
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    Cited by:

    1. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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