Financial growth involves generating higher revenue, increasing profit margins and expanding market share. It isn’t merely an aspirational goal, but a crucial element for businesses to survive and thrive in the long run. This is because it provides a strong base to withstand economic uncertainties and manage operational challenges. In addition, it boosts competitiveness, enabling companies to invest in cutting-edge technologies and recruit the best talent.

Financial Growth: How to Expand and Protect Your Wealth

A growing body of research has assessed the impact of finance on growth, and whether particular forms of financial markets and institutions promote or inhibit growth at different stages of economic development. While the literature suffers from some weaknesses, three tentative observations emerge:

First, existing evidence shows that a financial system’s degree of functionality matters for growth. This finding is consistent with the Schumpeterian view that the development of financial intermediaries affects economic development by determining which firms receive society’s savings, thus affecting total factor productivity growth and technological change.

Second, the development of financial markets and institutions may be a necessary precondition for achieving a high rate of economic growth. This finding is also consistent with the theory of economic growth as a determinant of social welfare, which emphasizes the distribution of wealth and income.

Finally, a substantial amount of evidence suggests that the development of financial markets and institutions reduces the external financing constraints that constrain firm and industrial expansion. This finding is consistent with the theory of resource allocation as a determinant of economic growth, which emphasizes the allocation of capital to resources with the highest returns.