The Role of Financial Institutions in Economic Development

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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
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PROGRESS REPORT
Student Name:
Student ID No:
Supervisor Name:
Project Title: The Role of Financial Institutions in Economic Development
Introduction
The aim of this project is to evaluate the effects of lending strategies, liquidity foundation, and
amendments of the banking system to the countrywide economic development in the setting of one
semester.
Phase 1
Project title conceptualization and approval
Different project titles were conceived, but one had to be chosen. The choosing of this specific title was
in adherence to the suggestion of a title that is of paramount significance to the country’s economic
position in the world. Economics is a wide subject, and there I had to research the different sectors
before settling on th...


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