Essay - Financial Development and Economic Growth Hypothesis: the United States of...

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Financial Development and Economic Growth


The United States of America has made significant developments with respect to their financial market which in turn has resulted in the form ***** high economic growth. When we compare ***** US, ***** has one of the most developed ***** markets, ***** other less developed countries, we find that the United States accumulates capital and grow at a higher rate due to markets being more stable. On the o*****r hand, other *****er developed countries have not made much considerable development ***** respect ***** financial development which in ***** ***** affected their economic *****th. In this paper we will examine the financial development of a less developed country ********** will measure its effects on its economic growth. For this purpose we will include statistical data to make our point more valid. We will also use measure of financial development such as ***** exchange ***** volatilities, stock market size, bank clearings and the economic ***** indicators such as GDP and ***** formation ***** to measure the relationship bet*****en financial ***** ***** economic growth.

For the purpose of comparing the financial development and ***** growth of the US, we have chosen the Italian economy ***** ***** system. We ***** ***** the GDP ***** rates of both ***** ***** and will measure the level of financial development made by both the *****s. Finally ***** will examine as ***** whether the economy making higher growth with respect to ***** development has ***** higher economic growth? The reason for choosing ***** economy for comparison is that it is a lesser developed financial market as compared to the United *****.

***** ***** and Economic growth - An overview of past studies:

There ***** been a lot of rese*****rch already done on the issue of identifying a relati*****ship between financial development and economic growth. The questions like does financial development spurs economic growth? To what extent does higher growth induce a reduction in the incidence of poverty? What can financial development contribute in reducing poverty? are continuously part ***** the economists debate.

Generally it is believed that Economic growth is simply the result of refraining from current consumption. Within an economy, there are two general types of commodities. One are the consumption goods ***** the others ***** the capital goods. The ***** ***** are for the purpose of general consumers use while capital goods are used for production of other *****. ***** in an economy there ***** a ***** consumption of ***** ***** by the households, ***** considerable part of the income is ***** spent *****d the result is in the form ***** positive net savings. Because of the saving by the genera ***** and their abstention ***** the purchase of consumption goods, more resources become available for investments. Hence, the household sacrifice their current consumption for the sake of ***** future *****. From *****se available resources for investments, firms borrow money for their businesses in order to invest ***** money in capital goods which will ***** turn add to capital stock


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