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

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

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

There has been a lot of rese*****rch already done on the ********** ***** identifying a relationship between financial development ***** economic growth. The questions like does financial development spurs economic growth? To what extent does ***** 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. Within an economy, there ***** two general types ***** commodities. One are the consumption goods *****d the others ***** the capital goods. The consumption goods are for ***** purpose of general consumers ***** while capital goods are used for production ***** other *****. When in an economy there is a lesser ***** of consumption ***** by the households, ***** considerable ***** 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 ********** abstention from the purc*****e of ***** goods, more resources become available for investments. Hence, the household sacrifice their current consumption ***** the sake of ***** future *****. From these available resources for investments, firms borrow money for their businesses in order ***** invest ***** money in capital goods which will ***** turn add to capital stock

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