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BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
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for economic growth. Sound and efficient the opportunities available to individuals. Well-
financial systems are especially important for functioning financial systems allocate resources
sustaining growth in developing Asia because to those with the best ideas and entrepreneurial
efficiency of investment will overshadow skills, enhancing efficiency and expanding
quantity of investment as the driver of growth economic horizons. Poorly functioning
in the region financial systems funnel credit to those with
strong political and social connections, with
It is worth noting that financial markets play harmful ramifications on economic welfare.
a very crucial role in our economic system,
by allowing the global commerce to operate References
smoothly and continuously without breaks. • Buera, Francisco J.; Kaboski, Joseph P.; and
By providing open and regulated systems, Shin, Yongseok. "Finance and Development:
financial markets help the companies to raise A Tale of Two Sectors." The American
substantial amounts of capital. Indeed, this Economic Review, 2011, Vol. 101, No. 5, pp.
process takes place very smoothly through the 1,964-2,002.
stock and the bond markets. Moreover, markets • Dougall, Herbet E. and Jack E.Gaumnitz(1980)
also allow the businesses to equipoise risk Capital Markets and Institutions (Prentice
by accessing commodities, foreign exchange
futures and other derivative markets. Hall, Englewood cliffs)
• King, Robert G.; and Levine, Ross. "Finance
Additionally, a well-functioning financial and Growth:Schumpeter Might Be Right."
system helps in endorsing the process of
financial deepening and augmentation. The Quarterly Journal of Economics, 1993,
Vol. 108, No. 3, pp. 717-37.
The financial system backs the economic
development not only by means of technical • PIMCO, “Lessons from the March 2020
progress but also in its own right. It plays a Market Turmoil,” February 2021
very important role in promoting economic
growth, by creating incentives for investment • Polakoff, Murray E. and Thomas A. Durking
and fostering trade and business linkages. By (1981), Financial Institutions and Markets
directing savings into productive investment (Houghton Mifflin, Boston) Smith, Paul
and smoothing capital inflows, financial F.(1971),
markets stimulates investment in both physical • Smith, Paul F.(1971), Economics of Financial
and human resources. The relation between the Institutions and Markets (Richward D.Irwin,
capital and output is quite strong, direct and Homewood)
monotonic, this is why economic development
tends to depend adversely on the rate of capital • Rajan, Raghuram G.; and Zingales, Luigi.
formation. "Financial Dependence and Growth." The
American Economic Review, 1998, Vol. 88,
The operation of the financial system exerts a No. 3, pp. 559-86.
powerful influence on economic growth and

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