Role Of Finance In The Economic Conditions Of The Country

Role Of Finance

Any country’s development largely depends on its GDP. When it is asked what is the role of finance in economic development? Different economists have put forward varied perceptions. Several prominent researchers believed in the notion that finance sector merely adjusting the actual demand of real sectors. On the other hand, several researchers considered it as vital ailment in terms of alleviating marketing conditions therefore it influences investments, innovation saving runs, overall brings out innovations. 

The rise of financial sectors is used to mitigate the effects of information on a transaction that directly linked with investments concerning society. In the line of countries developments, some experts emphasis on financial instruments and more on performance these tools used to perform. According to Levin et. al 2004 financial tools facilitates goods and service exchange mobilize pool saving and enables investments efficiently done in allocating goods and services. In a nutshell, finance system calls upon corporate governance, manage risk divers finally helps in allocating funds. Like these small stances, here in this blog, we are going to discuss the role of finance in economic conditions and how it uplifts or down a country growth.

Economic And Finance Development

With time, countries have been expressing over expanding evidence body to suggest the economic and financial model development. Out of the large one is supported by a depth measurement of the efficiency of finances country growth. Many developed and non developed countries largely show banks and markets are associated with faster growth and this relationship is exhibited by controlling reverse causality. Back in 2000, Levin has said, financial sector development helps economics through a variety of ways-

  • Efficiently resource allocation
  • Large scaled saving mobilization
  • ‘Improving the investment rate
  • Offering to buy and sell securities within markets

Elliot and Baily, in 2013 have collected evidence to understand the critical functioning of the US economy. According to their research model, banks are central to financial systems. Banks allow the business to invest beyond their cash on hand. They have changed the cyclic pattern of revenue collection and directly provides a substantial amount of credit in the US. 

In some cases, in assignments, you may ask to present credit chart of a particular company. On that note, if you don’t know how to select key performance indicator, then SourceEssay based assignment writer will provide your free assistance on different assignments topics.

Historical Determinants- Financial And Economic Development-

Financial development of any country is multifaceted projects, therefore, would be difficult to measure. Notwithstanding each country should be aware of how financial system fulfils the requirements of their operations, identifies profitable projects, exerts corporate control, manage risks, eases transaction and mobilizes savings. However, till today, there is no such measure country across the globe have adopted for analyzing financial development. 

There are numerous individual countries have provided evidence, for instance within the US several bank branches reforms lending quality as per capita growth rates. Zinagels, in 2002 has examined the financial development of Italy and concluded local financials is enhanced by profitability like if an individual starts the business, it will increase the industrial competition this promote economic growth. 

In an outlook of essay helpers, financial development has largely seen as impacting external stocks by dampening it in the domestic economy. 

Taken as whole private credits which are the credit values by financial intermediaries is divided by GDP and Stock Market Capitalization to measure the depth of banking systems. 

Private credits are being widely used to capture the number of credits channelled from the savers whereas Stock Market Capitalization analysis defines the ability to mobilize the capitals. Both of them will increase if individual income will rise. 

Government Role

Government plays a major role by giving stable microeconomic conditions and saturation in politic for well functioning financial system development. It enables greatly in supervising and regulating marketing conditions without distorting investments of marketing participants, avoiding ownership of the financial institution. 

As said by essay rewriter, government policies help in facilitating broad access to financial services. It liberalizes the financial system by allowing foreign exchange. 

A financial system also requires a legal system so to gain the ability to rise the external funding into formal financing. Any outside company will become reluctant if the company doesn’t stand by corporate governance rules (Pollitt & Mercure, 2018). Therefore to protect the investment and shareholders protecting of property rights policy set by the government become a ray hope for the financial to save foreign exchanges.

Empirical studies have concluded volumes of banks credits would be higher if countries exchanges information on a large scale. Firms reported lower obstruction if they occupied with enough credit information. Indeed compared to the high economy, in lower-income countries where credit information exchange is higher, more legal enforcement required and this would be possible because of government intervene. To know more about a government role in financial institution establishment, ask online assignment help from SourceEssay experts today.

Role Of Financial System In Economic Development

  • Capital market growth- Any country needed fixed and working capital. Foreign exchanges between countries with the help of policies help in raising funds and provide banks opportunities to invest in short term idle funds to earn maximum profits
  • The financial system helps the government to raise short and long term funds in limited time
  • Banks provide direct liquidity to the business owners and affiliates the core functioning of financial markets (Demirguc-Kunt, Asli. 2006)
  • Financial systems allow business and households to handle risks from commodity price exposure
  • It enhances both foreign and domestic marketing growth
  • It will generate more employment opportunities


A well functioning financial system is a key to achieve sustained economic growth. In this blog, we have tried to take such scenarios to define how financial sectors play a crucial role in developing long term economic of a particular country and came to know financial tools facilitates goods and service exchange mobilize pool savings about the investments efficient done in allocating goods and services. Later we have defined government role in enhancing financial systems and extracted government policies help in facilitating broad access to financial services and liberalize financial system by allowing foreign exchange. Therefore some prominent roles of the financial system in economic development have been discussed in bullets like financial systems allows business and households to handle risks from commodity price exposure


Bailey.M.N, Elliots.D.J(2018) The Role of Finance in the Economy: Implications for Structural Reform of the Financial Sector. Available at- [Data Accessed on 29 January 2021]

Demirguc-Kunt, Asli. (2006). Finance and economic development : policy choices for developing countries.

Elabbar, I. (2020). Role of Financial System in Economic Development.

Levine, R. (2002) “Bank-Based or Market-Based Financial Systems: Which is Better?” Journal of Financial Intermediation 11, 398–428

Pollitt, H., & Mercure, J. F. (2018). The role of money and the financial sector in energy-economy models used for assessing climate and energy policy. Climate Policy, 18(2), 184-197.

Rajan, R.G., and Zingales, L. (2003). Saving Capitalism from the Capitalists. New York:Random Hous Protection Status
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