Research Insights: How to Increase Credit Penetration in Latin America and the Caribbean?: Improve Government Capacity and Reduce the Role of Interest Groups
There is a largely neglected political economy dimension to promoting financial development (the depth of credit markets) in the region, which includes the role of interest groups and government capabilities. The combination of the degree of opposition to financial development from incumbent industries and differences in government capabilities explains much of the variation in financial development across countries. To increase financial development, reforms are needed that affect the long-term incentives of political actors to invest in their capabilities, combined with policies that can influence the incentives and the power structure of interest groups.