Deregulation, financial deepening and economic growth: The case of Latin America

Does deregulation of financial markets speed up capital accumulation and growth? This paper uses a general equilibrium model to analyze the impact of deregulation and financial deepening on the real sector. The model suggests that deregulation and a more developed banking sector prompt firms to increase the capital intensity of production, fostering more rapid growth. Evidence form Latin America provides support for the main result of the model by showing the positive impact of deregulation and financial development on investment.