ipl-logo

Financial Structure In Economic Development Research Paper

2997 Words12 Pages

Discuss three alternative ways in which the role of financial structure in economic development has been visualized. Based on that discussion, outline your own perspective on the nature of this relationship.
Literature reveals the various takes on the relationship which may exist between financial development and economic development. While few advocate the presence of a strong correlation between the two, others doubt its strength. The paper here aims to analyze three major views on the relationship, with all the views admitting to the presence of a positive effect of financial development on economic development to some degree or the other. The first view, the functional finance approach, justifies the relation in terms of mitigation of transaction …show more content…

THE FUNCTIONAL FINANCE APPROACH
This approach, highlights how well the financial systems mitigate the effects of information and transactions costs, thereby influencing saving rates and investment decisions. It focuses on the ties between growth and the quality of functions provided by the financial system. These functions include facilitating the trading of risk, allocating capital, monitoring managers, mobilizing savings, and easing the trading of goods, services and financial contracts (Levine, 1997).
There exist some information and transaction cost which characterize the real economy and the claim that this approach makes is that financial structures arise to counter the negative consequences of these frictions. Different types of costs involve the evolution to different types of financial structures(markets, institutions, instruments) accordingly, to serve a basic purpose of facilitating the allocation of resources, across space and time, in an uncertain environment (Merton & Bodie, 1995). This primary function has been broken into five basic functions whereby the financial systems (Levine, 1997):
• facilitate the trading , hedging, diversifying, and pooling of …show more content…

Theoretically, this may be attributed to the availability of sources other than the financial structure that facilitate growth or a comparatively more important role played by the state in economic development, especially in the socialist countries. Empirical analysis has also highlighted some degree of similarity between the financial sources of investment in Germany and the non-financial enterprise in UK, which castes serious doubts upon the importance of role played by universal banks in Germany, as stressed by Gerschenkron in his view (Edwards & Fischer, 1993). Also, considering banks as proper substitutes for prerequisites for industrialization might be an exaggeration since generally, some non-financial factors too are required over and above the banking assistance, for growth to occur. That is, the endogeniety of financial development is not guaranteed as there may be some exogenous determinants of growth as

Show More
Related

  • The Impact Of Imperialism

    864 Words  | 4 Pages

    He gave an example that connected the monopolized banking system in Germany to the development of imperialism. As the advancement of industries, the German banks gradually played a significant role in finance and eventually became so powerful that they could manipulate most of the industrial cartels in Germany. As the severe competition increased, these cartels made less profits and suffered more the financial burdens. Consequently, the banks accompanied by the cartels were eager to export their capital to foreign lands. With the help of the imperial governments, the cartels strongly vied for foreign markets to expand their capitalist markets in the world.

    Read More

  • Federal Reserve Act Of 1913 Research Paper

    1296 Words  | 6 Pages

    This shows that overnight panics can be the initial catalyst for longer economic downturns. The panic of 1907 shows further links between financial distress and failure among financial intermediaries specifically trust companies, and the poor performance of the nonfinancial firms that depended on them for loans and other financial services. This shows that there needed to be some form of a central bank to help mitigate these panics. More importantly the panic of 1907 had many severe effects, “industrial output fell 17% in 1908, and real GNP fell by 12%”

    Read More

  • Reasoning Behind The Creation Of The Federal Reserve System

    1083 Words  | 5 Pages

    December 24, 1913, the United States Congress along with the help of President Woodrow Wilson created the Federal Reserve Act. The Federal Reserve System was established as an independent government agency. The reasoning behind creation of the Federal Reserve, was to establish a disciplined banking system, which would help avoid economic collapses, commonly known as a crash. Another reason the Federal Reserve System was created, was to protect the government system from political pressuring, so they could maintain an appropriate supply of money going into the economy. Prior to the creation of the Federal Reserve System, there was a fear that the central banks would gain too much power, which served as another reasoning behind the creation of

    Read More

  • Jagdambay Exports Case Study

    1681 Words  | 7 Pages

    The capital business sector is the business sector for securities, where organizations and the legislature can raise long haul stores. The capital business sector incorporates the stock exchange what 's more, the security market. Money related controllers, for example, the U.S. Securities and Exchange Commission, direct the capital markets in their individual nations to guarantee that financial specialists are ensured against extortion. The capital markets comprise of the essential business sector, where new issues are appropriate to financial specialists, and the optional business sector, where existing securities are exchanged. (n.d.).

    Read More

  • Gerschenkron Economic Backwardness

    1267 Words  | 6 Pages

    In the advanced countries capital accumulation takes place within industry of development, in the moderately backward countries the banks first undertake the leading role in industrialization, and at the next stage industry advances to a position independent of the banks. In other words, the backward countries it is the state which first undertakes the leading role in industrialization, at the second stage the banks take over this function, and at the third stage industry attains independence of the

    Read More

  • Making College Debt Free

    1029 Words  | 5 Pages

    stocks and bonds. Using the speculation tax as a revenue source, an estimate of more than $150 billion can be raised within a year (Turbeville). Per contra, Tuberville states that FST will increase the cost of trades, discourage short-term trades rather than long-term investments all the while reducing the “profitability of high-frequency trading” and increasing market volatility because a computerized trading system can freely enter and exit the market. Moreover, the transaction tax will ramp up the cost of capital and “thereby reduce investment and growth” while increasing unemployment rate (Baker). John and Dubay also add that the financial transaction taxes thousands of high-waging jobs and drive a portion of an industry overseas.

    Read More

  • The Organizational Structure Of Bank Of America

    850 Words  | 4 Pages

    Organizational Structure Bank of America is an American financial services corporation and is the second largest bank holding organization by assets, in the United States. The headquarter of the financial organization is situated in Charlotte, North Carolina. The bank has approximately 5,700 retail banking offices and 17,250 ATMs in the United States. The online banking system of the bank has more than 30 million active users.

    Read More

  • Alexander Hamilton's Transportation Revolution

    1568 Words  | 7 Pages

    This act enables creditors to gain power and it gives large-scale entrepreneurs an advantage in competing for investment capital. One major weakness of the system is that it restricts beginning entrepreneurs entry into markets because the banks need reserves, which prevents long-term

    Read More

  • What Is The Pcnet Project Case Study

    674 Words  | 3 Pages

    Over the last few years, risk management has become an area of development in financial institutions such as Bank America, and Wells Fargo. Also being a part of Wachovia Bank looking back at their demines I am thinking there risk management would be handling different if they were allowed to turn back the hands of time. The area of financial services has been a business sector related to conditions of uncertainty. The financial sector is the most volatile in the financial crisis of 2008, or about 8 years ago. Activities within the financial sector are exposed to a large number of risks.

    Read More

  • Blaine Kitchenware: Case Study: Blaine Kitchenware Case

    921 Words  | 4 Pages

    From this, we are able to drive up the value of equity, while also building a tax shield to maximize our

    Read More

  • Four Key Business Functions

    707 Words  | 3 Pages

    The interdependence of the key business functions and finance solely depends on money. All operations activities rely on funds meaning the outcomes of the finance department affect the other

    Read More

  • The Impact Of Globalization In Germany

    1127 Words  | 5 Pages

    (Peter Hintereder and Martin Orth – 2013). Regarding to studies, Germany is Europe’s largest economy, accounting for roughly a quarter of European GDP. It is the world’s fourth largest manufacturing producer and the fourth largest producer of automobiles. It is the world’s third largest commercial services exporter; the third most important source of foreign directs investment (FDI); is third in global patents, and boasts the third most developed financial sector. As well, Globalization helped Germany in terms of investment.

    Read More

  • Capstone Reflection

    1612 Words  | 7 Pages

    With the recent complicated economic financial environments, there may be some abnormal relationships comparing with the theories. We cannot examine them in the project. 3.

    Read More

  • Disadvantages Of Economic Growth

    1571 Words  | 7 Pages

    INTRODUCTION Economic growth is defined as the increased capacity of an economy to be able to produce goods and services in comparison from one period of time to another. This is figured by the genuine Gross Domestic Product (GDP) and development, and is measured by utilizing genuine terms such as “Balanced Inflation”. These terms help to remove any distorted views on the perceived outcome of inflation on the cost of merchandises produced. Likewise, Economic growth is related to the high expectations in a person’s standard of living. If the standards are high, it wouldn’t be beneficial for the economy as the working class individuals will face a lot of trouble.

    Read More

  • Essay On Importance Of Financial Management

    812 Words  | 4 Pages

    It must be full fill the business concern’s requirement. Every organization must maintain adequate amount of finance for their smooth running of the business organizations and to achieve the business goals. Importance of Finance can’t be neglect in an organization. Some are the importance of financial management is as follows: • Financial Planning Financial planning is an essential part of the business organization. Financial management helps to determine the financial requirements of the organization and leads to take financial planning to the organization.

    Read More

More about Financial Structure In Economic Development Research Paper

Open Document