The role of the financial sector in economic development Essays

The role of the financial sector in economic development Essays The role of the financial sector in economic development Essay The role of the financial sector in economic development Essay The topic of my essay covers one of the most distinguished areas in the theory of economics financial sector. There is an enormous corpus of literature dedicated to this particular aspect and it was my intention to review only those that are very closely related to the role of financial system and financial liberalisation. To be able to assess the role of the financial sector and financial liberalisation, it is convenient to divide the title of this paper into several categories. In a subsequent section the role of the financial sector will be reviewed. In separate sections I will introduce the present theory of financial liberalisation, its advantages and risks inherent to it. Given a constraint of a world limit it is impossible to go through all the arguments within the scope of the topic, that is why, I tried to choose only those, which were in my opinion of the most prominence. It is by now widely agreed that finance contributes to long-term prosperity. It is obvious that advanced economies have sophisticated financial systems. What is not obvious, but is borne out by the evidence, is that the services delivered by these financial systems have contributed in an important way to the prosperity of those economies. Getting the financial systems of developing countries to function more effectively in providing the full range of financial services is a task that will be well rewarded with economic growth. An efficient and stable financial sector is important for economic growth and poverty reduction. The financial crises that have afflicted many countries in recent times have been a costly and painful reminder of the disastrous consequences for development of weak financial markets. Financial stability is crucial for sustained economic growth and cannot be achieved without strong financial systems. Weak financial systems can destabilise local economies, making them more vulnerable to external shocks, and may threaten global financial markets. In practice an efficient financial system can simultaneously lower the cost of external borrowing, raise the returns to savers, and ensure that savings are allocated in priority to projects that promise the highest returns, all of which have the potential for affecting economic growth rates. 1 Holden and Rajapatirana (1995), stress the importance of financial sectors suggesting, that economic growth and, in particular, the development of the private sector cannot occur without a financial system that effectively intermediates between savers and investors. A healthy financial sector allows financial resources to be allocated toward activities with high rates of return; allows efficient intermediation, which implies lower resource costs; and yields better information processing, which allows innovative investments to be identified. 2 Gibson and Tsakalotos (1994) emphasize how crucial the organisation of the financial sector is and add that the financial sector can actively help to promote growth. 3 To understand why the financial system is so crucial to development, it is useful to outline the advantages of financial intermediaries. 4 They suggest that a well-functioning financial system might permit a higher level of saving and investment and, therefore, economic growth. For many years, governments followed a policy of financial repression, which relied on fixing interest rates below market levels and controlling the allocation of credit. The economic distortions induced by these policies were considerable. Financial systems remained under-developed, lending patterns were inefficient and failed to achieve their distributional goals. Negative real interest rates led to low savings and encouraged capital flight. Macro-economic performance also deteriorated countries with large negative real interest rates experienced lower allocative efficiency and growth rates. In the state-owned banking sector, poor lending decisions (often politically influenced) and low repayment rates led to bank insolvency and large budgetary bailouts of depositors and creditors. 5 McKinnon-Show analysis of a financially repressed economy suggests that interest-rate ceilings stifle savings by promoting current consumption, reduce the quantity of investment below its optimal level and reduce the quality of investment by encouraging banks to finance only low-return projects. The clear policy implication is the removal of interest-rate ceilings and more generally other government regulations, which prevent the loan market from operating competitively. A growing awareness of the economic costs of financial repression, led to financial liberalisation as the dominant policy paradigm over the past two decades.

3 Problems of Nonparallel Interjections

3 Problems of Nonparallel Interjections 3 Problems of Nonparallel Interjections 3 Problems of Nonparallel Interjections By Mark Nichol In a post published recently, I discussed simple problems of parallelism in sentence construction. Here are three examples of more complex errors involving corresponding sentence elements. 1. â€Å"Low-interest rates have been one of the primary, if not the primary factor in extending the real estate boom in the United States.† The corresponding phrases in this sentence are neither parallel nor complete. First, the additional consideration (â€Å"if not the primary factor†) must be structured as an interjection, meaning that it has to be bracketed parenthetically by commas, em dashes, or parentheses. (Which method you choose depends on the emphasis you want to give the interjection: Parentheses minimize the interruption, commas are the default punctuation for separating an interrupting phrase from the main sentence, and em dashes call attention to the inserted phrase.) In this case, â€Å"if not the primary factor† must be set off from the rest of the sentence with punctuation before and after; any of the three punctuation forms is appropriate. However, there’s more work to be done. The key to correctly constructing a sentence with an interjection is that if the interjection is omitted, the sentence is still complete. But read this version of the sentence with the interjection omitted: â€Å"Low-interest rates have been one of the primary in extending the real estate boom in the United States.† Obviously, factors must be inserted after the first use of primary in additional to the inclusion of the singular form of the word in the interjection: â€Å"Low-interest rates have been one of the primary factors, if not the primary factor, in extending the real estate boom in the United States.† 2. â€Å"Talk of a name change has struck some political observers as not only a merely cosmetic, but also as a pointless gesture.† As with the previous example, this sentence lacks a correctly framed interjection â€Å"but also as a pointless† must be set off from the rest of the sentence: â€Å"Talk of a name change has struck some political observers as . . . a merely cosmetic gesture.† (The ellipsis marks the omission of â€Å"not only,† which as part of the â€Å"not only . . . but also† comparative device is technically a part of the interjection.) The corrected sentence should read, â€Å"Talk of a name change has struck some political observers as not only a merely cosmetic, but also a pointless, gesture.† (Note the omission of the second instance of as.) Better yet, convert the interjection to a sentence-ending tag: â€Å"Talk of a name change has struck some political observers as not only a merely cosmetic gesture but also a pointless one.† 3. â€Å"He could have, but he didn’t, press for a clear, bilateral agreement on immigration.† Use the interjection-omission test described above to analyze this sentence’s problem: Without the (correctly punctuated) interjection, the sentence erroneously reads â€Å"He could have press for a clear, bilateral agreement on immigration.† A hypercorrection featuring logical correspondence at the expense of readability is â€Å"He could have pressed, but he didn’t press, for a clear, bilateral agreement on immigration.† As with the previous example, the sentence is best repaired by moving the interjection to the end of the sentence: â€Å"He could have pressed for a clear, bilateral agreement on immigration, but he didn’t.† Want to improve your English in five minutes a day? Get a subscription and start receiving our writing tips and exercises daily! Keep learning! Browse the Grammar category, check our popular posts, or choose a related post below:Math or Maths?â€Å"As Well As† Does Not Mean â€Å"And†While vs. Whilst