Abstract

Utilizing panel data methods and applying Granger causality tests within a framework of a panel cointegration and error correction model, this paper investigates the relationship between financial development and economic growth for 14 Latin American countries from 1978 to 2011. The empirical results show that when banking sector development indicators are used as proxies for financial development, there is evidence of uni-directional causality from economic growth to banking sector development. On the other hand, when stock market development indicators are used as proxies for financial development, the empirical results show that there is a bi-directional causality between stock market development and economic growth.

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