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Financial Development and Economic Growth in Latin America: Schumpeter is Right!

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  • Manoel Bittencourt

    () (Department of Economics, University of Pretoria)

Abstract

In this paper we investigate the role of financial development, or more widespread access to finance, in generating economic growth in four Latin American countries between 1980 and 2007. The results, based on the relatively novel panel time-series analysis, confirm the Schumpeterian prediction which suggests that finance authorises the entrepreneur to invest in productive activities, and therefore to promote economic growth. Furthermore, given the characteristics of the sample of countries chosen, we also highlight the importance of macroeconomic stability, and all the institutional framework that it encompasses, as a necessary condition for financial development, and consequently for growth and prosperity in the region.

Suggested Citation

  • Manoel Bittencourt, 2010. "Financial Development and Economic Growth in Latin America: Schumpeter is Right!," Working Papers 201014, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201014
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    References listed on IDEAS

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    1. Manoel Bittencourt, 2012. "Democracy, populism and hyperinflation: some evidence from Latin America," Economics of Governance, Springer, vol. 13(4), pages 311-332, December.
    2. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    3. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    4. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
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    9. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
    10. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
    11. repec:spr:portec:v:1:y:2002:i:2:d:10.1007_s10258-002-0009-9 is not listed on IDEAS
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    16. Yongfu Huang, 2005. "What determines financial development?," Bristol Economics Discussion Papers 05/580, Department of Economics, University of Bristol, UK.
    17. Manoel Bittencourt, 2010. "Financial development and inequality: Brazil 1985–1994," Economic Change and Restructuring, Springer, pages 113-130.
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    Cited by:

    1. Andrea F. Presbitero & Roberta Rabellotti, 2014. "Geographical Distance And Moral Hazard In Microcredit: Evidence From Colombia," Journal of International Development, John Wiley & Sons, Ltd., vol. 26(1), pages 91-108, January.
    2. César Calderón & J. Rodrigo Fuentes, 2013. "Government Debt and Economic Growth," IDB Publications (Working Papers) 4641, Inter-American Development Bank.

    More about this item

    Keywords

    Finance; Growth; Latin America;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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