Role Of Financial Intermediation On Economic Growth

This study tries to examine the relationship between financial development and income inequality by exploring a large cross-country sample for the period 1992-2001. The results show some support for the inequality-narrowing hypothesis. In contrast, the results reject the inequality-widening hypothesis. And the panel data regression provides some weak support for the inverted U-shaped hypothesis.

Considering the role of government in lending and the overlap on taxation, Private lenders are more stringent in their lending policies and, consequently, have to turn down some high risk borrowers. The government is willing to lend these borrowers the money they need for capital to carry out their businesses. These borrowers will then be able to acquire the resources they need to produce what they need. What is overlooked at this point is the fact that, because these high risk borrowers were able to get what could have been acquired by low risk borrowers from private lenders, the resources ended up in the hands of less efficient producers who may not be as productive as the producers who qualified for private lending. Furthermore, high risk borrowers get the money from the taxpayers and taxpayers can not fet benefit from this lending and this means the practice to the benefit of a few at the expense of everyone else. For the short-term result, government lending can encourage entrepreneurship to create more GDP and bring benefit for the high risk borrowers. But for the long-term result, high risk borrowers may not produce and use money efficiently when get money from the government. The worse is that this only benefit for special groups.

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets, vice versa. Financial markets and intermediaries have the basic function of getting people together by moving funds from those who have a surplus of funds to those who have a shortage of funds.

The overall development of an economy is a major factor that has significant impacts on the development of the economy's financial markets. Since well-functioning financial systems offer good and easily accessible information, they lower the costs of transaction. This in turn enhances resource allocation and strengthens economic growth. The financial services industry consists of various systems such as stock markets and banking systems that enhance growth and help in poverty reduction. However, commercial banks tend to dominate the financial system during low levels of economic development while stock markets become more active and effective during periods of high levels of economic development ("Financial Sector", n.d.). The other important systems in the financial services industry include sound macroeconomic policies, shareholder protection, and good legal systems.

Q: Why would most investments in the economy fail to take place if there were no financial

Banks are the key to our growth. Banks allow us to grow because they have as we say imaginary money. Banks are allowed to loan ten dollars for every dollar they actually

Banking system and the Financial Institutions play very significant role in the economy. First and foremost is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by making best use of the credit availability in their systems. An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors. At the same time, the medium and small ventures must also have credit available to them for new investment and expansion of the existing units. Rural sector in a country like India can grow only if cheaper credit is available to the farmers for their short and medium term needs.

The Banking Industry plays an important role in the economic development of the country and is the most dominant segment of the financial sector. Banks encourage economic growth by allocating savings to investments that have potential to yield higher returns. They perform their basic role of accepting deposits and lending funds from these deposits. Banks securely save the money of depositors, provide interest to them, and lend the funds raised from depositors to consumers. They are in a wide range of sizes, from large Global Banks to Regional and Community Banks. We can study the structure of an organized banking industry by taking an example of Indian banking industry:

Consequently, the great depression was happened at that period. It is worth to mention that such cause is still occurring in recent crises.

Financialization can be shown in three perspectives. Firstly, financialization implicates finance regains dominant power in capitalism. Secondly, autonomy of financial institutions increases because of the increase in financial interests. Thirdly, wide range of economic actors is integrated into financial markets due to financial innovation and expansion of financial sector (Palley, 2007).

Through fresh innovative and creative ideas we have seen how these different concepts and ideas change the business environment. Entrepreneurship plays a role in the economy and can result in the growth and development of the economy in a country. This essay will be discussing the different aspects on what Entrepreneurship is, The Role it plays in the economy and the different type Entrepreneurial businesses involved in the growth and development of the economy of the country. Entrepreneurship will help the economy by providing more job opportunities, creating new wealth and can reduce unemployment . It is clear that there is positive relationship between Entrepreneurship and Economic growth; this link will be discussed in the essay.

Traditional avenues to secure financing have historically been through commercial banks (Types of Financing, 1996). The economic turmoil during the

Q: Why would most investments in the economy fail to take place if there were no financial

The theoretical framework on the effects of capital market on economic growth dates back to the work of Schumpeter, (1911) which explained that a well developed financial system can facilitate technological innovation and economic growth through the provision of financial services and resources to investors. The above argument of Schumpeter, (1911) was later advanced as the McKinnon-Shaw, (1973) hypothesis, which is a policy analysis tool for developing countries with strong recommendation and high priority on the efficiency of financial systems in facilitating capital accumulation and financial intermediation.

Financial Institutions or banks are very important and valuable for the sake of the economic growth of an economy (Gup, 1999). Therefore, the government of almost every country of the world likes to execute their growth through the existence of financial institutions. Apart from the financial institutions, there is yet another thing that needed to be there in an economy known as Financial Markets (Gup, 2003). This assignment is a Financial Market based assignment in which different provisions and elements of the financial markets would have been acknowledged and analyzed. There are three different parts of the assignment which further bifurcated into different answers.