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


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Financial Development and Economic Growth

Hypothesis:

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, which has one of the most developed financial markets, to other less developed countries, we find that the United States accumulates capital and grow at a higher rate due ***** markets being more stable. On ***** other hand, other *****er developed countries have not made much considerable development with respect to financial ***** which in ***** ***** affected their economic *****th. In this paper we will examine the financial development of a less developed country and ***** measure its effects on its ***** 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 ***** volatilities, stock market size, bank clearings and the economic ***** indicators such as GDP ***** capital formation data to me*****ure the relationship bet*****en financial ***** and ***** growth.

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

Financial ***** and ***** growth - An overview of p*****t studies:

There has been a lot ***** rese*****rch already done on the issue of identifying a relationship bet*****en financial development and economic *****. 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 ***** result of refraining from current consumption. W*****hin an economy, there are two general types ***** commodities. One are the ***** goods ***** the others are the capital goods. The consumption ***** are for the ***** of general consumers ***** while capital goods ***** used for production ***** o*****r *****. ***** in an economy there ***** a lesser consumption of consumption ***** by the households, ***** considerable part of the income is ***** spent ********** the result is in the form ***** positive net savings. Because of the saving ***** the genera households and their abstention ***** the purchase ***** consumption goods, more resources become available for investments. Hence, the household sacrifice their current consumption for the sake of *****ir future consumption. From these available resources for investments, firms borrow money ***** their businesses in order to *****vest ***** ***** in capital goods ***** will in turn add to capital stock

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