Running head: THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
The Role of Financial Institutions in Economic Development
Student Name
Institutional Affiliation
Instructor
Submission Date
1
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
2
The Role of Financial Institutions in Economic Development
Attaining high and continuous ratios of commercial development has been the aim of
business growth in all parts of the world. In efforts to promote economic development, various
strategies have been proposed by different governments to advance the living conditions of their
people to minimize or eradicate poverty. But, the advancement of economic growth requires an
adequate amount of capital funds and profitable investments which ensures a viable increase in
the industrial sector (Eriksson, 2010). Previously, strategies to advance savings compilation have
consistently been recommended as essential because savings rate can impact commercial
development via financially profitable ventures. Thus, the collection of savings is a crucial
condition for attaining high and continuous standards of economic advancements.
But, the debate concerning the essence of savings for progress is connected to another
debate concerning the efficiency of savings in commercial capital accretion and thus ensuring
there is economic growth. It causes the question of the significance and responsibility of business
sector in the challenging association among between investments, savings, and economic growth.
The give-and-take between financial system growth along with macroeconomic on the other
hand and savings have been assessed in the economic growth and advancement literature.
The argument on this matter remains applicable and contentious. The debate happens in
varying approaches, one of which is the association between saving and economic development.
The next dimension of the discussion is the impact of commercial sector growth within savings
that causes significant queries of whether the interest ratios have any implications on savings.
The third factor of the discussion is the association between the banking system and economic
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
3
growth that leads to the query; does the banking system growth leads to economic advancements
or does development leads or promotes the development of the banking sector (Arner, 2007).
In the realization that financial institutions such as banks play critical responsibilities in
commercial growth of different countries, this research aims at addressing the above matters.
Initially, it analyzes the literature on the growth of the banking system, examining the effect of
stocks liquidity, saving on the GDP, interest rates, stimulation of economic advancement, and
lending. Secondly, it explores the significance of the growth of the commercial sector by
evaluating its effects on economic development and expenditures that are a prominent source of
economic growth. On the third part, it will assess the Nigerian banking sector; evaluate its inputs
to the advancements of the Nigerian market system, and how the different baking amendments
have affected on its authority and contrary to the commercial growth of Nigeria.
Research Aim
The study aims at to evaluate the duty of the banking system and economic development,
assessing its liquidity foundation, lending strategies, and numerous amendments in the banking
sector, along with a perspective to seeking explanations for the progress of the country, slow and
turbulent economic development. To attain this aim, this essay deals with different discussions
and hypothesis in the literature and applies statistical and commercial apparatus to analyze the
directions which have dominated in primary factors of the banking system.
Objectives
The following particular study objectives were formulated to attain the goal of the study.
•
To evaluate the structure and state of the Nigerian banking system.
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
•
4
To describe the kind and the description of the applied amendments and developmental
strategies related to them.
•
To evaluate the effects of the banking system growth on lending, business ventures, and
lending and therefore economic advancement in Nigeria.
Literature Review
The commercial structure plays a significant responsibility in economic growth of any
nation. It bonds savings and business ventures and thus, encourages economic development that
is appreciated since a more efficient and well-formulated commercial system assists to organize
a lot of savings and maximize productivity on investments that ensure that there is a suitable
business environment for economic development. Also, finance has a critical duty in any market
system as organizations should undertake ventured capital to promote the production of
sufficient goods and exceptional services. Still, governments usually borrow from the
commercial sector to finance massive ventures that outpace their current revenues. On the other
hand, self-finance via savings is an opportunity for families and organizations, but, the services
offered by commercial institutions such as banks via the production of automobiles and tools for
savings, business ventures, lending and financing operations are commonly large compared to
personal-finance via mobilized savings.
In developing nations, the duties of capital and financial institutions are very essential. It
is due to the citizenry and governance faith that their market systems will advance at a higher
rate, to produce prominently improved per capita revenues and codes of conduct. It is noted that
an active commercial system, for instance, the one that promotes savings, assembles the
accumulation efficiently, and designates them to the business ventures that will be profitable and
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
5
enhance rapid economic growth. To accentuate the essence of the business system development
the market system and partially evaluates the anticipated weaknesses of the industry in offering
financial services, authorities have voluntarily arbitrated comprehensively in the activities of the
commercial services in the industry.
Such interferences have comprised public ownership of financial institutions such as
banks, insurance firms, and other commercial emissaries, government restrictions on the
applicants by local and external organizations into the industrial services industry, government
classification of structures that banks should finance. Government control of interest rates,
government objections as to the types and designs of commercial apparatus which could be
provided and established revenue collection of different tools, business exchange and distribution
of revenue associated with commercial services. The retail industry of a robust economic system
surrounds financial institutions such as insurance firms, stock brokerage companies, banks,
pension funds, which offer financial services for the industry. But, this essay is entirely
interested in the banking system.
The Responsibility of the Financial System
An efficient and effective commercial system can advance the distribution of resources in
an economic order by developing the allocation of resources from commercial structures with
excess capital and promoting the distribution of these funds from active savers to retail units with
business ventures or utilize demands that are surplus of their savings. Therefore, ensuring there is
adequate wealth in the market economy. The essence of this procedure cannot be miscalculated
since through this process; resources in a market system are exceptionally used, leading to an
improved level of generating income. The useful functionality of the commercial industry
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
6
contributes to higher average results on enterprises that lead to higher savings, producing
increased liquidity to the business environment which they can be resourceful to the economy
and ensure there is consistent economic growth.
Ideally, banking system creates two prominent ramifications for savings and venturing
offering liquidity, commercial institutions such as banks enable hazard-averse savers to store
bank deposits instead of actual assets. Of specific necessity is that banks can scrimp liquid
wealth property that does not devote to the mobilization of capital. Furthermore, by eradicating
personal-finance capital ventures, banks avert the unessential liquidation of such enterprises by
investors who think that they require liquidity
Banking Industry and Economic Development
There exists an extensive theoretical and observational study that authorizes a connection
between the banking industry advancement and the economic growth. It is because the essence
of the banking sector is immeasurable and universally distributed where there are previous
alterations in the banking services, instruments, and governance. The effects of these adjustments
cover the borders of one minimal local economy to global economy. In actual sense, a lot of
developing nations have not created their financial structures, and this has not been prioritized,
thus not positioned at the top of their advancement and growth programs (Eden, 2012). Distinct
from the developed economic systems it is acknowledged to be relevant to their market systems
and as such concerns the commercial sector as the foundation of the system since it coordinates
business operations and the adequate mobilization of resources.
A wide range of accurate intelligence promotes the notion that baking advancements can
directly impact economic progress and development and reduce income discrimination. It
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
7
concurs along with the verification of the World Bank that there is a probability of a spontaneous
association among an adequately-functioning banking industry, business equilibrium, eradication
of poverty, and economic advancement (Demirguc-Kunt, 2017). Comparative study on the
connection between the banking sectors and economic development demonstrates that companies
located in market systems with well-established banking systems along with stock markets, have
experienced improved growth rates compared to other economies with same sectors but there is
minimal growth. It can be argued that economic progress has a dual effect on economic
development. The growth of local markets may enhance the performance of mobilization of
capital while financial intervening can facilitate the act of saving (Cetorelli, 2000). The
perspective was affirmed by economists who also found out some promising cooperation among
economic advancement has in promoting the more efficient utilization of the financial stock.
The growth of the banking system can be measured by the edge among deposit and
lending interest rates and by the ratio of inactive loans in the market system. It is as a result of
well and separately associated with economic progress as sluggish investments demonstrate the
quality and amount of data that the banking system has gained and evaluated which in turn
impacts its lending strategies to entrepreneurs (King, 1993). The development of the financial
sector might be a substantial necessity for economic growth because vibrant economies and
commercial organizations might minimize the cost of conducting business and irregular data
challenges. Also, financial institutions have a significant responsibility in identifying business
opportunities, choosing the most beneficial business strategies, allocating savings, promoting
business activities and the diversity of hazardous factor, and at the same time advancing
organizational management techniques.
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
8
The underdevelopment of the banking system has unfavorable effects upon the populace
and development, while the practical and dynamic systems decisively impact economic growth
via the efficient distribution of resources to the most active consumers. Improvements in
commercial structures presage and devote to economic development (Todaro, 2006). For
instance, King and Levine demonstrated that the degree of industrial growth around the year
1960 was an active principle of economic advancement. Some of the recent research studies have
aimed at explaining whether commercial increase causes advanced economic growth and
progress. For instance, Beck et al. (2005) assessed the potent effects of the external element of
retail emissary growth on the origins of economic development by utilizing cross-nation samples
along with information moderated over a period of thirty-five years (1960-1995). They
concluded that financial emissaries’ growth has a massive, profitable effect on an optimum
aspect of product development and that the long-term connections between commercial growth
along with both economic growth and personal saving rates are unsteady. They also found out
that business growth reinforces the development of industries that are commonly comprised of
smaller companies, compared to large organizations. A lot of their work contributes to the
composition of the procedure via which the commercial growth enhances cumulative economic
development. Regardless the confirmation of the fact that industrial development promotes the
growth of the economy by reinforcing the growth of companies that depend on external capital,
they demonstrated that commercial development supports economic growth by alleviating the
restraints affecting the growth of smaller organizations.
It can be summarized that the responsibilities played by financial institutions such as
banks in the rise/growth of the economy are explicitly defined in developing nations where there
is an existence of random data. The illustration of irregular data between lenders and borrowers
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
provides profitable observations into the designs that commerce is most likely to undertake. It
would determine who might be capable of gaining financial capital, from whom and under what
circumstances directed by terms and conditions of the lenders. This procedure might critically
reduce the accessibility to wealth for those who demand it and therefore reduce the rate of
economic operations. Thus, banks take part in credit regulations to reimburse for the hazards by
appointing higher rates on borrowers that dismay borrowers with rewarding business ventures
from seeking credits, thus worsening the percentage of business activities in the country (Vittas,
2004). The impacts on the role of banks on economic growth are critically restrained as loan
rationing is unfavorable to investors which later on sabotage the economy.
9
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
10
Bibliography
Arner, D. W. (2007). Financial stability, economic growth-and the role of law. New York:
Cambridge University Press.
Beck, T. &. (2005). Finance, firm size, and growth. Washington, DC: World Bank.
Bessel van der Kolk, M. (2015). The Body Keeps the Score: Brain, Mind, and Body-in the
Healing of Trauma . San Francisco: IDreamBooks Inc.
Cetorelli, N. P. (2000). Oligopoly banking and capital accumulation. Chicago, IL: Federal
Reserve Bank of Chicago.
Dattilio, F. M. (2014). Cognitive-behavioral therapy with couples and families: A comprehensive
guide for clinicians.
Davies, D. (2011). Child development: A practitioner's guide. New York: Guilford Press.
Demirguc-Kunt, A. L. (2017). Regulations, Market Structure, Institutions, and the Cost of
Financial Intermediation. Regulations, Market Structure, Institutions, and the Cost of
Financial Intermediation, 54-90. doi:10.3386/w9890.
Eden, M. (2012). Excessive financial intermediation in-a model with endogenous-liquidity.
Washington, DC: World Bank, Development Research Group, Macroeconomics and
Growth Team.
Eriksson, T. (2010). Advances in the economic analysis of participatory and labor-managed
firms. Bingley: Emerald.
Gill, J. J. (2014). Research methods for managers.
THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWRTH
McDowell, T. (2015). Applying critical social theories to family therapy practice.
R, K. R. (1993). Finance, entrepreneurship and growth: Theory and experience. Journal of
Monetary-Economics, 512– 542.
Saunders, M. N. (2016). Research methods for business students.
Todaro, M. P. (2006). Economic development. Boston: Pearson Addison Wesley.
Vittas, D. &. (2004). Insurance regulation in Jordan: New rules, old system. Washington, DC:
World Bank.
11
In academic
طلية الخليج
0
affiliation with
STAFFORDSHIRE
UNIVERSITY
GULF COLLEGE
PROGRESS REPORT
Student Name
Student ID No.
Supervisor Name
Date of Submission :
Project Title:
Introduction:
The aim of this project is to
in the setting of
This progress report discusses the progress made by the researcher:
Note: the author introduces this by 1) reminding what the project deals with and 2) what
the progress report deals with (time period).
(Describe the activities, processes, and procedures that were undertaken during the
months specified in each phase)
Phasel
Project title conceptualization and approval
Writing of Introduction
Student – Adviser Conference: (include date/s when conference/s held)
Phase II
Data gathering, identification and classification of data
Writing of literature review
Analysis and interpretation / corroboration of data
Student – Adviser Conference: (include date/s when conference/s held)
Phase III
Finalization and submission of the project
Problems, issues, and limitations of the Research
Conclusion
Student Signature
Date
Purchase answer to see full
attachment