Finance and Development in Uruguay Post Cold War

Abstract

This chapter employed Johansen-Juselius Cointegration test, short-run and long-run causality tests, and error correction modelling to examine the finance and economic development of Uruguay between 1981 and 2019. The result shows that gross fixed capital formation and government expenditure have positive and statistically significant relationships with gross domestic product per capita, while the degree of openness exhibits a negative but statistically significant sign in relationship with gross domestic product per capita. The study therefore recommends that since gross capital formation and government expenditure influenced the economy of Uruguay the most, the Uruguay's government should focus on building more capacity in capital stock, which is believed to attract more investment. They should also spend on real sectors of the economy to boost the economic growth and increase the gross domestic product per capita and by extension the welfare of the economy.