Financial System Development and Economic Growth in Least Developed Countries

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ACKNOWLEDGEMENTS

My thanks go out to all who have helped me complete this study and with whom this project may have not been possible. In particular, my gratitude goes out to friends, facilitator and family for extensive and helpful comments on early drafts. I am also deeply indebted to the authors who have shared my interest and preceded me. Their works provided me with a host of information to learn from and build upon, also served as examples to emulate.

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DECLARATION

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

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TABLE OF CONTENTS

ACKNOWLEDGEMENTSii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

Theoretical framework1

Problem statement2

Significance3

Limitation of the study3

Research question4

CHAPTER 2: LITERATURE REVIEW5

History of financial system5

Why does a country need a financial system?6

Financial Structure, Growth and Volatility of Growth10

Financial growth and economic development relationship11

Financial Structure and Economic Growth: Empirical Evidence13

Literature limitations19

REFERNCES22

CHAPTER 1: INTRODUCTION

The economies of developing countries are affected by a number of problems such as lack of financial capital and skilled human resources, among other things, preventing their development in general. In particular, insufficient investment capital often stifles efforts towards economic expansion and entrepreneurship. Financial development plays an important role in this context. The term has been defined by Goldsmith as a change in financial structure.

It has also been suggested that financial development has two dimensions: financial deepening and widening. Financial depth means greater availability and use of financial instruments such as securities and capital. Financial assets are accumulated in a rate that is faster than the accumulation of non-financial wealth. In the On the other hand, the financial expansion involves increasing use of financial markets is in terms of the number of industries available.

Theoretical framework

The issue of financial development that serves as a catalyst for economic growth in these countries has been widely discussed by scholars. The role of the Policy Division's work UK Department for International Development (DFID, 2004) suggests that the financial sector could be developed by improving the efficiency and competitiveness of the sector, increasing the range of financial services, increasing the diversity of institutions operation, increasing the amount of money and capital allocation, and through better regulation stability and more.

External shocks from fluctuations in oil prices experienced in the 1980 and lending to weak borrowers, the institutions of government led to a bank failures. These borrowers weak pressure on banks not recover debts. In addition, government financial institutions in African development countries suffer from inadequate enforcement tools and the low level of management, financial markets are inefficient and dominated by a highly concentrated banking sector, loan portfolios are not diversified, insurance schemes and pension are not well developed.

As a result, U.S. Treasury report calls for reform and better regulation and supervision of the financial industry in ...