Financial Independence and Economic Policy in Costa Rica

Abstract

The main objective of the dissertation is to formulate a .system for financial analysis and planning in the Costa Rican economy. First, a tentative structure within which a model of the financial system can be organized is outlined, and the corresponding statistical tables are constructed for the period 1961-1975. It is expected that such tables will be periodically updated and incorporated into a series of publications which describe and analyze financial developments in Costa Rica. The study then analyzes the evolution of the Costa Rican financial system based on the generated data and a set of well-known financial indicators. Finally, alternative linear financial models are formulated and estimated; they are the basis for an analysis of financial interdependence, i.e., the process through which sectoral investment and/or saving decisions generate indirect financi~l consequences in the rest of the economy. Some interesting findings of the study, related to the analysis of financial developments during the period 1961-1975, are the observed rapid growth of the relative size of the Costa Rican financial super-structure, coupled with an accelerated process of monetization of the economy. In addition the importance of the foreign sector in the financial.activities of the country shows a considerable increase. The empirical evidence that emerges from estimating alternative linear financial models suggests a considerable degree of financial interdependence, with the government sector taking a predominant role in the generation of financial multiplier effects. It also indicates that the definition of sectoral preferences over liability holdings as a behavioral assumption in the underlying model, explains the pattern of sectoral financial behavior in the Costa Rican economy more effectively than the alternative assumption that preferences are defined over asset holdings.