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

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

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

There has been a lot of rese*****rch already done on the issue ***** identifying a relationship between financial development and economic *****. The questions like does financial development spurs economic growth? To what extent ***** ***** 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 the result of refraining from current consumption. W*****hin an *****, there ***** two general types of commodities. One are the ***** goods ********** the others are the capital goods. The consumption ***** are for ***** purpose of general consumers use while capital goods ***** used for production ***** other commodities. ***** in an economy there is a lesser consumption of consumption ***** by the households, ***** considerable part of the income is not spent and the result is in the form of positive net savings. Because of the saving by the genera households and *****ir abstention ***** the purc*****e of consumption goods, more resources become available for investments. Hence, the household sacrifice their current consumption for the sake of their future consumption. From these available resources for investments, firms borrow money ***** their businesses in order ***** *****vest ***** money in capital goods ***** will in ***** add to capital s*****ck

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