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


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Financial Development and Economic Growth

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

***** ***** purpose of comparing the financial development and economic growth of the US, we have chosen the Italian economy and ***** system. We will ***** the GDP growth rates of both the countries and will measure ***** level of financial development made by both the markets. 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 ***** financial market as compared to the United *****.

Financial ***** ***** ***** ***** - An overview of past studies:

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

Generally it is believed ***** Economic growth is simply the result of refraining from current consumption. Within an economy, ********** ***** two general types of commodities. One are the consumption goods ***** the others are the capital goods. The consumption goods are for ***** purpose of general consumers ***** while capital goods are used for production of other *****. When in an economy there is a ***** ***** of consumption ***** by the households, ***** considerable part of the income is not spent and the result is in the form of positive net sav*****gs. Because of the saving by the genera households and their abstention ***** the purchase of consumption goods, more resources become available for investments. Hence, the household sacrifice their current consumption ***** the sake of their future consumption. From these available resources for investments, firms borrow money for their businesses in order ***** invest this money in capital goods which will in turn add to capital s*****ck

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