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Latin American Financial Development in Perspective

  • Alicia García Herrero


    (Banco de España)

  • Javier Santillán

    (Banco de España)

  • Sonsoles Gallego


    (Banco de España)

  • Lucía Cuadro


    (Banco de España)

  • Carlos Egea

    (Banco de España)

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.

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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0216.

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Length: 71 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:bde:wpaper:0216
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