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

***** ***** purpose of comparing the financial development and economic growth of the US, we have chosen the Italian economy ***** financial system. We will ***** the GDP growth rates of both the ***** and ***** measure ***** level of financial development made by both the **********. Finally we will examine as to whether the economy making higher growth with ***** 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 ***** and ***** growth - An overview of p*****t studies:

There ***** been a lot ***** research already done on the issue of identifying a relati*****ship bet*****en financial development and economic growth. The questions like does financial development spurs economic *****? To what extent ***** ***** growth induce a reduction in the incidence of poverty? What can financial ***** 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 ***** two general types ***** commodities. One are the consumption goods ***** the others ***** the capital goods. The consumption ***** are for the ***** of general consumers use while capital goods ***** used for production ***** o*****r *****. ***** in ***** economy there is a lesser ***** of consumption goods by the households, ***** considerable part of the income is ***** spent and the result is in the form ***** positive net savings. Because of the saving by the genera ***** and their abstention ***** the purchase ***** consumption goods, more resources become available for investments. Hence, the household sacrifice ***** current ***** for the sake of *****ir future consumption. From these available resources for investments, firms borrow money for their businesses in order to invest ***** money in capital goods which will ***** ***** add ***** capital stock

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