Role of Financial Markets on the Financial Development and the National Exchequer: A Review of Literature

Abstract

The present work is an attempt to examine the financial markets upon the financial development and growth of a country. On one hand, well-functioning financial markets, by lowering costs of conducting transactions, may help direct transmittals to projects that yield the highest returns and therefore enhance growth rates. On the other hand, transmittals can compensate for a bad financial system, by loosening liquidity constraints, potential entrepreneurs could use remittances whenever the financial system does not help them start productive activities due to lack of collateral or because of high lending costs. Entrepreneurs in developing countries confront much less efficient credit markets and available evidence indicates that access to credit is among their biggest concerns. Additionally, the alternatives for financial development can be classified into two broad categories, those relating to the banking sector and those relating to the stock market.