Financial_Development_And_Economc_Growth

Financial Development And Economc Growth Patrick (1966) identified two possible causal relationships between financial development and economic growth. The first - called ‘demand following’ – views the demand for financial services as dependent upon the growth of real output and upon the commercialization and modernization of agriculture and other subsistence sectors. Thus the creation of modern financial institutions, their financial assets and liabilities and related financial services are a response to the demand for these services by investors and savers in the real economy (Patrick, 1966:174). On this view the more rapid the growth of real national income, the greater will be the demand by enterprises for external funds (the saving of others) and therefore financial intermediation, since in most situations firms will be less able to finance expansion from internally generated depreciation allowance and retained profits. For the same reason, with a given aggregate growth rate, the greater the variance in the financial, sectors, growth, services, demand, real, modern, thus, patrick, industries, greater, supply, upon, transfer, system, saving, response, leading, intermediation, institutions, expansion, economic, creation, view, variance, two, traditional, therefore, termed, sustain, support, subsistence, stimulates, stimulate, slow-growing, situations