Abstract

MENDEZ-HERAS, Lizethe; VENEGAS-MARTINEZ, Francisco  and  SOLIS-ROSALES, Ricardo. Finance and Growth in Mexico: Who Contributes the Most: the Banks or the Stock Market?. Lect. Econ. [online]. 2022, n.96, pp.235-278.  Epub May 05, 2022. ISSN 0120-2596.  https://doi.org/10.17533/udea.le.n96a344224.

This paper studies the relationship between the financial structure and the economic growth of Mexico during 1980-2014. The literature identifies two types of financial structure: bank-based and stock-market-based. In the first, commercial banking positively impacts economic activity, while in the second, the stock market influences the performance of the economy. A third view considers that all financial activity (banks, stock market and other financial institutions) influences growth. These hypotheses are assessed by using a VEC model. The empirical findings suggest that, considering the liquidity of the financial system, stock market activity predominates throughout the study period; but when we take the size of the financial system, banking activity prevails. We also show that increasing financial system liquidity had a positive effect on economic growth, although increasing the size of the financial system decreased the GDP per capita over the period 1980-2014. Moreover, the short-term dynamic analysis reveals that if the financial structure became more marketed-oriented, the effect on economic growth would be positive.

Keywords : financial structure; economic growth; banking sector; stock market.

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