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

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, con.rm 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.