Financial Development and Inclusive Growth : Attaining Shared and Sustainable Prosperity in Egypt
Better functioning financial systems foster economic growth, poverty alleviation; moreover, a more equitable distribution of economic opportunities enhances overall economic development. It is critical that financial development leads to inclusive...
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| Format: | Other Financial Sector Study |
| Language: | English en_US |
| Published: |
Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/01/20332564/financial-development-inclusive-growth-attaining-shared-sustainable-prosperity-egypt-vol-2-2-main-report http://hdl.handle.net/10986/20814 |
| Summary: | Better functioning financial systems
foster economic growth, poverty alleviation; moreover, a
more equitable distribution of economic opportunities
enhances overall economic development. It is critical that
financial development leads to inclusive growth. This brings
us to certain key questions: Who benefits from a better
financial system? Does financial development induce an
increase in per capita Gross Domestic Product (GDP) only
because the very rich are getting even richer? Does finance
expand economic opportunities for the bulk of society?
Economic theory suggests that finance shapes the
distribution of economic opportunities. The financial system
affects the degree to which a person s economic
opportunities are defined. It influences who can launch a
new business venture and who cannot, who can acquire
education and who cannot, who can live in a neighborhood
that fosters the cognitive and non-cognitive development of
their children and who cannot, who can pursue one s economic
dreams and who cannot. A more competitive, better
functioning financial system exerts a disproportionately
positive impact on relatively low-income families. According
to the extent that the financial system performs these
functions well, economies tend to grow correspondingly
faster. For example, when banks screen borrowers effectively
and identify firms with the most promising prospects, this
is a first step in boosting productivity growth. When
financial markets and institutions mobilize savings from
disparate households to invest in these promising projects,
this represents a second crucial step in fostering economic
growth. When financial institutions monitor the use of
investments after financing firms and scrutinize their
managerial performance, this is an additional, essential
ingredient in boosting the operational efficiency of
corporations, reducing waste and fraud, and spurring
economic inclusivity. There is a robust positive
relationship between financial development and both poverty
alleviation and reduction in income inequality. It is not
just that finance accelerates economic growth, which
trickles down to the poor; rather, finance exerts a
disproportionately positive influence on lower income
households. Building on the finance and poverty connection,
there is a direct link between finance and human welfare.
When policy reforms foster the development of the financial
system, financial services improve, accelerating economic
growth, which ultimately leads to ending extreme poverty and
boosting shared prosperity. |
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