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Financial Development and Economic Growth in Latin America: Is Schumpeter Right?

23 September 2012
Publication Type: Working Paper
JEL Code: E31, N16, O11, O54

In this paper we investigate the role of financial development, or more wide-spread access to finance, in generating economic growth in four Latin American countries between 1980 and 2007. The results, based on panel time-series data and 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 highlight the importance of macroeconomic stability, and all the institutional framework that it encompasses, as a necessary pre-condition for financial development, and consequently for sustained growth and prosperity in the region.

Series title: Working Paper 191
1 September 2010
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