Economic Growth and Its Stimulating Factors

By

ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

DECLARATION

I, (Your name), would like to declare that all contents included in this dissertation stand for my individual work without any aid, & this dissertation has not been submitted for any examination at academic as well as professional level previously. It also represents my own views & not essentially the ones associated with university.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

Background of the Research study1

Aims and Objectives3

Problem Statement3

Significance of the research study3

Rationale of the research study5

Research Questions6

CHAPTER 2: LITERATURE REVIEW7

Process of Economic Growth8

Neo-Classical Growth Theory9

Economic Growth and Inequality12

State ownership of the Financial Institutions12

Role of finance in the economic growth15

Role of financial intermediation in economic growth16

Review of Empirical Study17

REFERENCES18

CHAPTER 1: INTRODUCTION

Background of the Research study

The research study will highlight the economic growth and the stimulating factors that give rise to the revenue of the country and improve the standard of living of the people. The research study will also highlight the effects of the monetary regimes on economic development in different parts of the world. The growth of the economy brings prosperity to the country and enhances the economy that gives rise to the GDP of the country. The economic growth can be stimulated through various factors that include the role of financial intermediaries, role of government ownership of the banks and the social factors. The role of all these factors is crucial in the economic development of the country.

The economic growth is the process by which per capita income rises over time. Growth theory attempts to model and understand the factors behind this process. It is a particularly challenging area of research because growth is extremely uneven in space as well as in time.

Over the past millennium, world per capita income increased thirteen-fold, from $435 per person per year around the year 1000 to $5,700 nowadays. This contrasts sharply with the preceding millennia, when there was almost no advance in per capita income. Per capita income started to rise and accelerate around the year 1820 and it has sustained a steady rate of increase over the last two centuries. One of the main challenges for growth theory is to understand this transition from stagnation to growth and in particular to identify the main factor(s) that triggered the take-off.

The first key factor in the growth process is the accumulation of physical capital. For capital steadily to drive growth, the output of an economy needs to be proportional to the stock of capital used in production. In this case, growth will be proportional to investment. This accumulation through investment may come about either through local saving or by investment from abroad. A theoretical argument against this view claims that marginal returns to capital are decreasing, i.e. one cannot increase production per worker indefinitely simply by increasing the stock of capital per ...