Were early banks important for economic growth? Evidence from Latin America

ABSTRACT This article examines the available evidence from five Latin American economies (Mexico, Brazil, Argentina, Chile, and Peru) and determines the effect of bank output on economic growth from 1870 to 1920. By relying on a panel error-correction model, the evidence suggests that bank output had a significant long-term impact on GDP per capita. In the long run, an increase of 1% in the level of bank output per capita caused an increase of 0.2%-0.3% in GDP per capita. Compared to other studies, however, our estimates suggest a relatively low impact of bank output on GDP per capita. The results are robust to changes in the specification, in the sample, and in the method of deflating nominal variables.