The Role of Finance in Economics

The role of finance in economics is not quoted, but finance is a field of economics that focuses on funding individuals, businesses and governments. Finance allows these entities to use credits rather than cash to purchase products or invest in projects. For example, an individual can borrow money from a bank to buy a house or collect funds through investors to build a new factory. The government can issue bonds to raise funds for the project. Finance plays an important role in the economy.

In addition to discussing the role of finance in economic development, economists have long discussed the relative importance of bank-based and market-based financial systems (Golsdmith, 1969; Boot and Thakor, 1997; Allen). And Gale, 2000; Demirguc) - Kunt and Levine, 2001). In 1911, Joseph Schumpeter proposed that banks play a vital role in economic development. According to this view, the banking industry changes the way of economic progress by influencing the distribution of savings, not by changing the savings rate. Schumpeter's view on funds and development largely emphasizes the impact of banks on productivity growth (Schumpeter, Joseph A, 1934). Because the banking industry may have a positive impact on the economy as a whole it has broad macroeconomic significance (Bonin and Wachtel, 1999, Jaffe and Levonian, 2001, Rajan and Zingales, 1998). Banks have a significant causal effect on productivity growth, thereby contributing to overall GDP growth.

As financials play an important role in economic growth and industrialization, the globalization of financial markets has an impact on development. Globalization of finance influences growth in two ways. First, it increases the capital supply of the world. Secondly, it promotes domestic financial development, thereby increasing allocation efficiency, creating new financial products, and improving the quality of baking services. Globalization has led to an increase in capital flows in various countries. The flow of foreign capital has brought great economic interests to all parties. Foreign investors will diversify risk outside their own markets and gain opportunities globally. The economy that accepts capital inflows raises investment standards. When there is foreign investment, it usually involves management expertise, training programs and important links with suppliers and international markets.