Money and economic growth : The case of Mexico

The purpose of this study was to investigate the influence of money and certain non-monetary financial assets on the growth of real output in Mexico during the period 1940-1960. Recent theoretical and empirical work concerned with monetary theory, growth theory, and the integration of monetary theory and growth theory pointed to the money supply as being the financial asset with the most influence on real output, and indicated that the influence of the money supply on real output may be transmitted via the investment sector. The analysis failed to produce a significant statistical relationship between money and output. The one financial asset which was significantly related to real output was the real stock of quasi-money. The relationship was direct and not via the investment sector. The conclusion that quasi-money was significantly related to real output although the direction of influence was indeterminable, directly supports Gurley and Shaw's contention that in a growing economy a proliferation of the set of financial assets occurs which is important to monetary policy. The existence of the relationship between quasi-money and real output in Mexico also indicates the need to consider the question of whether a financial sector should be integrated into growth models instead of only a monetary sector.