Essay Example on the Issues Affecting Countries and the Aspects of Economic Growth

The reason for choosing the article is that it effectively focuses on the issues affecting countries and the aspects of economic growth. The contemporary environment is one that has seen an introduction of numerous companies in different industries, and one of the most significant challenges facing these companies is a source of money. After going through the article, it is possible for one to comprehend the various strategies that the companies can incorporate to offset their financial deficits and consequently get to improve their operations. Moreover, the article is essential in understanding the best manner through which a country can have economic development, and this is by engaging in various practices that are effective and beneficial to the state in general.

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According to the article, financial institutions and non-financial institutions that have an adequate amount of money are instrumental in aiding companies. Initially, it was difficult to get financial institutions to assist in the supply of money and resources, and this is because they did not trust the various companies to pay them back. However, in the 1980s, financial institutions gained an understanding that if they aided the various companies and charged them interest when returning the money, the financial institutions would also benefit by having a larger pool of funds. The general consequence of this was having economic development of the country and the living standards of people in the country rising.

In the article, there is a casualty nexus analysis that is related to financial development and economic growth. Financial development is directly related to economic growth, and this is because different countries through both the public and the private companies get to operate in such a manner that they overcome the various costs that are involved in business practices to ensure economic development (Helhel, 2018). Some of the strategies pointe out in the article include having the various producers coming together to reduce the cost of various services, and with the reduction of these, there is the assurance that more people will engage the companies. After this, there is the assurance that the services are more accessible to different people regardless of their financial stature, and this commercial development has more money circulating in the economy and eventually leads to economic growth.

The article majorly focuses on five countries that can be termed to be in the developmental phase, also known as third world countries, and these include likes of Brazil, South Africa, and Turkey. Some variables are analyzed in the article, and the one that is taken most seriously because of the weight that it bears is the financial development index. The index is made up of three market indicators that are credit based. The other variable to go through is the logarithm form that bears the per capita economic growth (Helhel, 2018). The other subtle indices presented relating to the financial development and economic state of these countries include the domestic credit that is offered by banks. It is imperative to note that this is presented as a percentage of the Gross Domestic Product and another one is the domestic credit provided by the financial sector, and this is represented as a percent of the Gross Domestic Product.

To comprehend the impact of these various variables, it is imperative to measure their performance and effect using VECM. VECM is an acronym that stands for vector error correction method (Helhel, 2018). The method id deemed most effective by financial and market analysts and reason for this is the fact that it manages to measure the performance of the market at the current time. Moreover, the method can predict and forecast future market changes and thus determine quality investment options. The main thing learned from the article is the fact that the financial institutions are the ones behind the economic growth of the country and not the government of the country.

References

Helhel, Y. (2018). Financial development and economic growth relationship: An analysis with credit-based financial index. Business and Economics Research Journal, 9(4), 761-771.