Question

With reference to the literature, discuss whether Financial System Development promote Economic growth

Answer 1

Financial system is related with the overall development of the capital market. A capital market is a good place for attracting investments from domestic investors as well as foreign investors. So, As there is more accumulation of financial assets and promotion of liquidity and transparency in financial transaction, it is highly beneficial for overall boosting of National Domestic product as well Overall National Income.

Generally a business needs capital in order to expand and with growing financial markets, it has become easier to acquire capital whether fixed or working, from different parts of the world and with facilitation of globalisation all around, people can easily invest in foreign business , leading to more of investment resulting into more of growth .

Financial markets are highly customized according to need of various individuals and business so capital acquisition is easy as well liquidation is easy too.

Overall, the multiplier effect of high capital leads to high growth through a series of interdependent factors.