Financial and Economic Development Nexus: evidence from Brazilian municipalities

Marcos Silva

No 399, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper investigates the relationship between financial development and economic development for 5,564 Brazilian municipalities in 2012. Using supply-side information, we propose a way to measure financial development at the municipality level. This composite index is used to evaluate how financial service is distributed throughout the country. Our empirical strategy consists in examining the effect of spatial dependence among municipalities by applying a spatial-autoregressive with spatial-autoregressive disturbance model (SARAR). We find a positive and significant association of the economic development between the municipality and its neighbors, after controlling for relevant factors. The results also suggest that financial development has a large positive impact on local economic development.

Date: 2015-09
New Economics Papers: this item is included in nep-ure
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