This website uses cookies to ensure you have the best experience. Learn more

The Relationship Between Financial Institution And Economic Growth

879 words - 4 pages

The first recommendation for financial institution to increase economic growth is financial institution should pay their attention to those low income areas of the country. In an economy that lack of financial institution, normally, people are having poor information of saving money in bank. People in poorer areas do not save money through financial institution. Most of them are saving money under mattress or in a cookie jar. As a result, the savings is not being used effectively and efficiently. Low saving in bank wills causes a limitation of money being keep in bank and bank also faced liquidity problem. So, entrepreneurs in economically disadvantage areas face difficulty of borrowing funds for business purpose. Moreover, in economically disadvantaged areas always results of low level of investment. The consequences of low investment are slow or no economic growth and also in growth of financial institution. Other than that, the information costs for both savers and borrower are high due to lack of financial institution. High information costs may reduce level of business investment and economic growth is affected. Therefore, deficit of financial institutions result in low official savings rate, at the same time it leads to low levels of investment. The lack of financial institutions results in increases information costs leads to reduce overall levels of business investment. As a role of financial institution, they should pay more intention in economically disadvantaged areas by expanding branches or provide knowledge of financial institution. So, people in economically disadvantaged areas can fully utilize the comparative advantage of financial institution in order to strengthen economic growth.
The second recommendation is central bank should lower reserve requirement in banks and other depository institutions. Reserve requirements are certain amount of cash and deposits that bank must hold to back up their deposit in order to sustain stable banking system. Once the Fed lower down rate of reserve requirement, there will be an increase in money supply. This is because banks only need to keep less reserve when reserve requirement are lower. Hence, banks are more reserve available for borrowing to public. Moreover, there are fall in interest rate since banks available sufficient money for lending. An increase in money supply and lower interest rate result in generate more investment. In business field, they have sufficient funds to order raw materials and increasing in production line. Increased in business activity enhances demand for labor and increases demand for capital goods. In household field, consumers are having more money in hands and it wills stimulate rises in spending. Prices of stock also will increase in stock market. As a result, lower reserve requirement able to reduce unemployment rate and stimulate...

Find Another Essay On the relationship between financial institution and economic growth

The Relation Between Gender Equality and Economic Growth

3772 words - 15 pages that avoid thresholds for job creation and household disincentives. The financial gains of integrating women into employment more than cover investment in social infrastructure.” (p.6) Löfström thinks about a long-term correlation between level of gender equality and growth rates. “The actual increase in economic growth is short-term in character, and is a result of increased gender equality… It is not unreasonable to suppose that a high

Relationship between Human Capital, Education, Health and the Economic Development

3248 words - 13 pages Relationship between Human Capital, Education, Health and the Economic DevelopmentIntroductionThe economic growth in general terms has three objectives which are economic development; social equity, and environmental conservation. Economic development means the well being of the people and elimination of poverty. The social equality contains access to basic needs such as health, education; human security and rights; gender equity; and

The Relationship Between Public Capital and Economic Activity

1855 words - 7 pages . Three sector wise aggregates were considered in the study viz., non-agricultural sectors, all economic sectors and manufacturing. Public capital and Labour were found to be complementary inputs with diminishing returns. Some of the later studies by Duffy-Deno and Eberts (1989), Eberts (1986, 1990), and Eisner (1991) were also conducted at the regional level. All these studies found a positive relationship between infrastructure and economic growth

Economic relationship between Canada and Spain

9275 words - 37 pages , so be accommodating and answer any questions about your background and family life.· Remain warm and personal during the negotiations, yet retain your dignity, courtesy, and diplomacy. The Spanish participants may initially seem restrained and indirect, but this is normal until your relationship has been established.· Although Spaniards are receptive to new information and ideas, you may find that they don't change their minds

Economic Growth between 3 Countries

1906 words - 8 pages Pat MinesECON 3515-9-14Professor FairchildEconomic Growth Between CountriesWhile the world has seen economic growth in almost every country in the past 200 years, the rate at which these countries grow are far from constant. The United Kingdom, China and Ethiopia have all grown at different paces since the 1800's due to government policies, world revolutions and changes, and other economic differences. The diversity of challenges that each of

The Relationship Between Gastronomy Tourism and How it Affects the Economic Environment of Tourism Destinations

1063 words - 5 pages and et cetera. The growing interest in this tourism has encouraged local communities and major destinations alike to support gastronomy tourism through their creativity and business practices. As a result, many tourist destinations have begun to focus on their local food and cuisine as a vital element in the promotion of their destination (Kivela and Crotts, 2005). My thesis will examine the relationship between gastronomy tourism and how it

An analysis on the relationship between parents’ financial condition and children’s academic performance

2012 words - 9 pages Title An analysis on the relationship between parents’ financial condition and children’s academic performance Objectives and significance of the paper 1. To illustrate that parental involvement contains many aspects not only in material support but also in mental development. 2. To demonstrate the significance about the educational equality. Description of the phenomenon It can not ignore the fact that children’s educational chances are

How economic, geographic, and social factors encouraged the growth of slavery in the southern colonies between 1606 and 1775

623 words - 2 pages The first immigrants to come to America relied on farming to get their food. As America's population began to grow and more farmers came around, trade increased between people. During its peak, America began to rely heavily on farmers for money. Certain crops made lots of money and those were the crops most farmers would grow. However, lot of workers would be needed to grow these crops and the idea of slavery came to America. As slaves kept

Critically Discuss the Relationship Between the Economic and Environmental Changes with Respect to Industry in Poland since 1989

1326 words - 5 pages ecological disaster areas." This checklist only scratches the surface of some of Poland's environmental problems but it is none the less alarming.A half-decade into the transition to market democracy, Poland's economy has the highest growth rate in Europe, and it is argued that environmental protection is vastly improved. Between 1990 and 1993, air pollution in Poland fell by 40%. While some analysts discounted these improvements, claiming that they were

Consider the relationship between the growth of industry in the twentieth century and the increasing use of bureaucratic forms of organisational structure during the same period

1709 words - 7 pages occur (Needman, Dransfield, Harris and Coles 1995). Advancements in technology over the next twenty years or so resulted in high rates of change in modern society (Finchman and Rhodes 1999) and brought with it the rapid pace of innovation we are familiar with today. Two commentators Max and Smith believed there was a close link between technology and organizational structures. Complex technologies produced rapid growth within industries, however

How did economic, geographic, and social factors encourage the growth of slavery as an important part of the economy of the Southern colonies between 1607-1775?

581 words - 2 pages The growth of slavery became intertwined in the life of the southern colonies in the 17th century and early and mid 18th century. Slavery slowly evolved from numerous factors. Such factors that lead to the mixing of slavery and the southern colonies' life were social classes, geographical location and economic problems. The paramount example is Jamestown, Virginia, the first successful English colony.During the development of Jamestown, there

Similar Essays

Relationship Between Financial Institution And Economic Growth

757 words - 4 pages efficient resource allocation. It can encourage borrowers and helps the banks’ underwriting business, which may cause a substitutive relationship between the equity market and the banking sector. However, excess liquidity may bring the impact of undesirable side effects. It will urge investor myopia, therefore, it actually hurting economic growth (Levine, 1996). Financial institution saving and investment can promote the economic growth by

The Causal Relationship Between Financial Development And Economic Growth

725 words - 3 pages refers to Patrick’s identification of two possible patterns in the causal relationship between financial development and economic growth. The first, called “demand-following”, growth generates an expansion of financial development, as the real side of an economy develops. The second pattern is termed “supply-leading” and consists of the notion that the expansion of the financial system, reallocating resources from savers to investors, induces

The Relationship Between The Repo Rate, Disposable Income, Inflation And In Turn Economic Growth In South Africa

2169 words - 9 pages Research proposal: the relationship between the repo rate, disposable income, inflation and in turn economic growth in South Africa Background: According to (BusinessDictionary.com, 2014) the repo rate is a rate, otherwise should for Repossession is known to central banks as the discount rate , which a central bank buys back government securities from any commercial bank all relative to the current level of money supply that the central bank

Financial Development & Economic Growth Essay

2451 words - 10 pages policy makers and advisors need to take the financial instruments, institution and financial market into consideration before formulating any economic policy. The importance of finance will also stress the need of research about the determinants of financial sector development.To establish the status of finance in overall growth of economics the different theoretical research need to assess which describes the connection between economic growth