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

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

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

Financial Development and Economic ***** - An overview of p*****t studies:

There ***** been a lot ***** rese*****rch already done on the issue of identifying a relationship between ***** 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 ***** ***** economists debate.

Generally it is believed ***** Economic growth is simply the result of refraining from current consumption. W*****hin an economy, there ***** two general types of commodities. One are the consumption goods ***** the others are the capital goods. The consumption ***** are for the ***** of general consumers ***** while capital goods are used for production ***** o*****r *****. ***** in ***** economy ***** ***** a lesser consumption of consumption goods by the households, ***** considerable part of the income is ***** spent and the result is in the form ***** positive net sav*****gs. Because of the saving ***** the genera households ***** ********** abstention from the purchase of ***** 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 for their businesses in order ***** *****vest ***** money in capital goods ***** will ***** ***** add to capital stock