The Impact Of Economic Growth Through The Process Of The Financial Liberalisation Of Developing Countries

The overall development of an economy is a major factor that has significant impacts on the development of the economy's financial markets. Since well-functioning financial systems offer good and easily accessible information, they lower the costs of transaction. This in turn enhances resource allocation and strengthens economic growth. The financial services industry consists of various systems such as stock markets and banking systems that enhance growth and help in poverty reduction. However, commercial banks tend to dominate the financial system during low levels of economic development while stock markets become more active and effective during periods of high levels of economic development ("Financial Sector", n.d.). The other important systems in the financial services industry include sound macroeconomic policies, shareholder protection, and good legal systems.

Previous literature has examined the economic causes and consequences of international and domestic financial sector liberalization. However, the political causes and consequences of economic liberalization have received less attention [Abiad2005]. Few theoretical work addresses whether an increase in financial liberalization leads to democratic transition [Milner2009, p175], or why large-scale policy changes regarding capital account liberalization took place in developing countries in 1990s [Cohen1996]. My research project addresses this gap in the literature. Using both formal theory and quantitative methods, I develop and test a unified theory that investigates the short-run and long-run political effects of international financial liberalization, and explains the causes, timing, speed, magnitude of liberalization.

This thesis explores the long run relationship between financial development and economic growth using time series modeling. For each of the four case-countries three types of Vector Autoregression (VAR) models will be developed except for the case of Serbia where only VAR related to credit institutions development will be developed since data related to stock market development indicators were unavailable to author. For the case of Croatia, Slovenia and China three separate VAR models will be applied. First, bivariate VAR model to explore the connection between credit institutions development and economic growth. Second, bivariate VAR model to explore the connection between stock markets development and economic growth. Third,

Abadie and Gardeazabel (2007) agreed that the stock markets are the main source of FDI, it is well known. But foreign firms that have been purchased through the stock market are in desperate need of financial services. This way, as a prospective investor makes decisions regarding his investments, he will be able to take into account the country’s financial development and banking development, and determine how such factors will ultimately affect their investments

One of the most important lessons from the Asian crisis is that it is prudent and necessary for developing countries to have measures that reduce its exposure to the risks of globalization and thus place limits on its degree of financial liberalizations. In a globalized world, developing countries often face tremendous pressures coming from developed countries, international agencies, transnational and national companies to completely open up their economies. It is proven that liberalization can and has played a positive role development, however; the Asian crisis has shown up that in some circumstances, liberalization can play havoc, especially on small and dependent economies. This is more so prominent in the field of financial liberalization, where lifting of controls over capital flows can lead to such extreme results as a country accumulating a mountain of foreign debts within a few years, the sudden sharp depreciation of its currency, and a sudden rush of foreign owned and local owned funds out of the country in a few months. So,

In the past two decades, economic analysts and policy makers have recognized that the financial system can significantly contribute to economic growth. Observing the changes that have taken place, a result has arisen that a liberalized financial sector operating in a competitive, open environment with market-based supervision based on international norms, is the best contribution to economic development. The new market-based paradigm for the design of financial systems contrasts with earlier thinking about the appropriate role for official intervention in the financial system. In the past, financial institutions, especially banks, were considered "special" entities in which it was appropriate for governments to intervene regularly in detecting a wide range of economic and social objectives . While, in earlier times, the financial sector differentiated strongly among countries and influenced by national rules .

There is growing consensus among researchers and academicians that in this globalized world the burden of private investment is increasing over Foreign Direct Investment (FDI). Because of a declining trend in public investment the task of capital formation rests over the shoulder of private investment and thus FDI playing a leading role in determining the fate of the economy. The economies receiving more inflow of FDI, are realizing a comparatively high growth and vice-versa. This is also expected to be happen in India. The present paper discusses the relationship between the inflow of FDI and GDP. It has been found that FDI has a positive correlation with GDP. the regression analysis between GDP and FDI of different sectors also supported the same result which shows that FDI inflow in India is playing very important role in determining the size of GDP.

The government in most developing countries intervened to provide more socially-optimal levels of capital, synchronized with government development planes, and to provide finance for government budget deficits through domestic financial markets (Alam,1989;Amsden,1989; Bradford,1986,1987;Cho and Kin 1991; johnson,1985; and Lee,1992).The financial regulations were designed and implemented to restrain market forces in the allocation of resources , to encourage economic growth ,ensure financial stability and achieve other national goals.

The idea of existence of correlation between financial development and economic growth was developed at the beginning of the last century (Schumpeter, 1912). It implies that well developed financial sector is able to enhance productivity and drive economy through making rational investment decisions and funding entrepreneurial innovative activities.

Financial Institutions or banks are very important and valuable for the sake of the economic growth of an economy (Gup, 1999). Therefore, the government of almost every country of the world likes to execute their growth through the existence of financial institutions. Apart from the financial institutions, there is yet another thing that needed to be there in an economy known as Financial Markets (Gup, 2003). This assignment is a Financial Market based assignment in which different provisions and elements of the financial markets would have been acknowledged and analyzed. There are three different parts of the assignment which further bifurcated into different answers.

This paper will look in depth at the effect of growth from FDI in India. It will first focus on the theoretical and empirical research regarding FDI and its effect on growth. It will discuss the literature that signifies that federal direct investment did help to grow India’s economy and explore why this is happening. It will mainly explore the federal direct investment outcome on growth and will use statistics on India’s economy to further understand this and prove that FDI is very important in order to help grow an economy. It will take a look at linear regression models that show a positive relationship between FDI and India’s GDP.

It has been widely believed that Foreign Direct Investment (FDI) assists developing countries with the much-needed capital for economic growth. Part of the foreign direct investment is the inflow of up to date technology and management skills. In this paper, I will investigate to what extent foreign direct investment inflows into Ghana affects the nation 's Economic Growth and Development by addressing selected macro economic variables including GDP, Employment and Wages (Income). The Heckscher-ohlin model will be used to examine the relationship between foreign direct investment and Economic growth whiles Graphical analysis will be used to determine the effects of foreign direct investment on the selected macroeconomic variables. What has increasing FDI inflows contributed to Ghana’s economic growth? Has the contribution increased or decreased overtime? Has the effects of foreign direct investment inflows into Ghana been positive or negative? The study seeks to answer these and many more questions on the effects of foreign direct investment. I hypothesize that foreign direct investment has no significant impact on GDP but positively affects employment and wages overtime. Foreign direct investment should therefore be encouraged in developing countries like Ghana.

The global market has never been larger, more dynamic, or more diverse than it is today. Financial institutions have shaped it and improved its efficiency, thereby making both the users and providers of funds better off. The process through which savings are allocated into productive investments is crucial for economic growth and general welfare. Investment banks are involved in this process, but what specific roles are attributed to them with respect to financial intermediation, and how well do they serve their functions?

The words ‘moneylender’, ‘borrower’, ‘debtor’, ‘creditor’ etc. are commonplace in today’s financial markets. Some other pillars for a powerful economy are stable government, dedicated workforce, the maintenance of internal peace, high GDP, successful industries etc. among others. However, one can consider the government and the financial market as the two foremost pillars on which the economic as well as overall growth of a country rests.

The late half of 1997 and the early parts of 1998 presented the world with one of the world’s most famous financial crises. This financial crisis proved to be detrimental mainly to the south-eastern Asian area, including South Korea, Thailand, Malaysia, Singapore, Hong Kong and Indonesia. The aforementioned south-eastern states recorded astounding economic growth in the preceding decade. The downfall of the economy caused a domino effect in the local markets and currency markets of each country. The nations’ leaders, as a result, had to request assistance from the IMF. Politics were important in creating the financial boom, but they were also guilty of the subsequent consequences.