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
