How does banking industry influence economic growth in Latin American countries?

Mestrado em Finanças

In the early 1990's a wave of financial liberalization programs passed by the Latin American region. This paper aims at investigating whether the improved bank efficiency and bank profitability as well as lower concentration in the bank market contributed into economic growth of certain countries in Latin America or not. We estimate bank efficiency via Data Envelopment Analysis (DEA), and Herfindahl-Hirschman Index (HHI) is used to measure bank market concentration. We test the influence of these variables along with bank profitability ratios (Return on Assets and Return on Equity) on Gross Domestic Product and its components using panel estimates. We sample a panel of consolidated accounts of commercial, savings and investment banks of 10 Latin American countries between 1998 and 2012. We find no statistically significant impact of bank efficiency and bank market concentration on economic growth, revealing that economic growth in Latin America is not so dependent on the banking sector as other regions of the world. However bank profitability has statistically significant positive effects on economic growth.