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

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Financial Development and Economic Growth


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

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

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

There ***** been a lot of research already done on the issue of identifying a relationship bet*****en financial development and 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 ***** contribute in reducing poverty? are continuously part ***** ***** economists debate.

Generally it is believed that Economic growth is simply the result of refraining from current consumption. W*****hin an economy, there ***** two general types of commodities. One are the ***** goods ***** the others are the capital goods. The consumption goods are for ***** ***** of general consumers use while capital goods are used for production ***** other commodities. ***** in an economy there ***** a ***** consumption of consumption ***** by the households, ***** considerable ***** of the income is not spent *****d the result is in the form of positive net savings. Because of the saving ***** the genera ***** and *****ir abstention from the purchase of consumption goods, more resources become available for investments. Hence, the household sacrifice their current ***** for the sake of *****ir future consumption. From these available resources for investments, firms borrow money ***** their businesses in order to *****vest ***** money in capital goods which will in turn add ***** capital stock


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