Literature review Coursework Example | Topics and Well Written Essays - 2750 words - 2

Literature review - Coursework Example The question thus remains whether financial sector can be considered as a signification source of economic development. In general, financial development has a twofold effect on economic growth. For one, capital accumulation can be increased by the financial sector. Secondly, development of financial institutions leads to enhanced savings which means greater investments resulting in greater capital accumulation. With increasing investments, capital can be used to increase the level of gross production. Also, properly developed financial institutions means increased variety of financial instruments that facilitate lenders and borrowers thus having a positive impact on the overall economy. However, in the long run other factors like human and physical capital need to be considered as other sources of economic growth. This paper will conduct a literature review on the subject of the relationship between financial development and economic growth in the context of the Indian economy. Furt her, the literature findings will be related with theories from articles based on similar context. Although not all views support the role of financial development on economic growth, positive views can be seen in Levine’s (1997) article. According to Levine’s theory, well developed financial institutions helps in reducing costs attached to information and transaction. Such reduced costs encourage increased investments leading to capital accumulation. With greater level of capital, there can be more spending on research sector leading to technological development causing higher efficiency in production process which in turns means increased level of gross production. Moreover, Levine has taken a broader approach in stating that various functions of financial institutions facilitate capital accumulation, rate of savings and trading of goods. Thus, he has concluded that financial structure as a whole,