Streaming Media

Media Type

Keynote Address

Publication Date

2-21-2004

Description

The attributes of a well functioning financial system are quite well known by now. Such a system is necessary for enhancing the efficiency of intermediation, which is achieved by reducing information, transaction, and monitoring costs; for promoting productive investment by identifying and funding good business opportunities; for mobilizing domestic savings; for monitoring the performance of businesses; for enabling the trading, hedging, and diversification of risk; and for facilitating the exchange of goods and services. These functions result in allocation of resources to the most efficient, resulting in a more rapid accumulation of physical and human capital, and faster technological progress, which in turn lead to higher economic growth. A large body of recent theoretical and empirical research has also confirmed the view that development of financial markets and institutions is crucial for economic growth. Empirical studies1 show that ‘financial intermediaries exert a large positive impact on factor productivity growth, which feeds through to overall GDP.’ The effect of financial development on growth is positive and the size of the effect varies with different indicators of financial development. These findings also suggest that legal and accounting reforms that strengthen creditor rights, contract enforcement and accounting practices can help boost financial development and accelerate economic growth

Notes

Presidential Address at the Annual General Meeting of the Institute of Bankers Pakistan held at Karachi on February 21, 2004

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