The Role of Financial Development for Economic Growth in Caribbean Islands

Leo-Rey Gordon ()

MPRA Paper from University Library of Munich, Germany

Abstract: Aghion, Howitt and Mayer Foulkes postulate that one mechanism by which financial development enhances economic growth is by increasing a nation’s ability to obtain frontier technology, which then increases the rate at which productive activity expands. This study empirically tests this hypothesis for a sample of 12 small island open economies of the Caribbean between 1980 and 2004. Possible simultaneity in the relationship between financial development and economic growth is accounted for by introducing a new proxy for financial development, for which its determination is uncorrelated with economic growth. The results of the empirical analysis shows that financial development enhances economic growth in the Caribbean by increasing country’s steady state level of income per capita, and not by the mechanism put forward by Aghion, Howitt, and Mayer Foulkes (2006).

Keywords: Financial Intermediaries; Economic Growth; Caribbean (search for similar items in EconPapers)
JEL-codes: G21 N26 O47 (search for similar items in EconPapers)
Date: 2009-12
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49566

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