The relationship between stock markets and economic development Essay

The relationship between stock markets and economic development - Essay Example Empirical studies do suggest that a well developed stock market can considerably support economic growth in the long run through faster capital accumulation, improved resources allocation and exploiting the prevalence of positive sentiment across the country. (Ahmed, Ali & Shahbaz, 2008) In 19th and 20th centuries, academicians such as Bagehot (1873) and Schumpeter (1911) had focused on contribution of financial sector to economy. The main function of money or capital in the initial years was to trade in credit for the purpose of financing development before the Great Depression. Gurley and Shaw (1955) were the first to study the relationship between financial markets and real activity. However, the direct relationship was not very clear until recently. Recent literature has paid much attention to banking reforms which directly affected both the stock markets and economic growth relationships. Levine (1997) suggested that liquid market spread can lead to stable and long term investments leading to economic growth through reduced transaction expenditure. While the conventional economists always believed that there was no direct relation between stock market growth and economic growth because of presence of level effect and not the rate effect. Many of them in fact be lieved that stock markets actually harm the economic growth due to its volatile nature, market flexibility due to unstructured and unexplainable sentiments and generally no justification for sudden surge or fall in stock indexes leading to perceived gains and losses of millions of dollars in a fraction of a day. However, there has been considerable growth of stock market share in economic direction of a country. During late 90s over a period of a decade, the total value of world’s stock markets rose from $4.7 trillion to $15.2 trillion while capitalisation share jumped fro 4% to 13%. (Levine 1998). The figures have since seen exponential growth in the past decade too, with world economy growing

The Fiscal Cliff and the United States Essay Example | Topics and Well Written Essays - 1250 words

The Fiscal Cliff and the United States - Essay Example The Fiscal Cliff and the United States: A Future Prospectus of What Actions will Precipitate what Reactions Although a firm understanding how these two relate would require a dissertation length piece on both social, governmental, and economic trends, this brief essay will attempt to summarize some of the key concerns related with these implications as well as seeking to understand and quantify the ways in which a given government can seek to maintain the optimal balance of freedom, equality and solidarity in order to proceed within such a difficult economic environment as the current nation is experiencing. With the situation regarding the United States’ â€Å"Fiscal Cliff† as it has been called, the situation is with regards to a host of tax cuts and new austerity measures that are due to go into affect the first of this coming year – if not legislative or executive actions are taken to ally them. The purpose of this piece is not to argue between either fiscally liberal or conservative policies as a panacea to the ills of our current financial travails. However, igno ring the present viewpoints that exist on the topic and attempting to analyze them to find a middle path is equally foolish. Accordingly, the author has chosen to devote some brief space to the political ideologies that the two party system of the United States has necessarily espoused. The primary obstacle towards a greater understanding between the two political parties with regards to austerity, spending, and the national debt is with regards to how the situation should be handled.... Such a sum for the time was an unimaginable one (Hinch, 2012). Aided by nearly a decade of conflict and two wars, the Republican Party lost any and all credence that they had formerly retained with reference to being the party of fiscal responsibility. However, with regards to the individual positions that the political spectrum retains, there can be said to be two. The Democratic Party believes that the best way to find a reasonable solution from such economic difficulties revolve around raising taxes (specifically on the upper middle class and wealthiest citizens). Such an approach has merits; however, speaking economically, it also serves to penalize those job-creators that most directly influence the level of growth and recovery that the nation would experience if such a deadweight loss were not experienced. Similarly, those that support the alternate view to the one listed above claim that any and all budget shortfalls must be remedied by relying on austerity and/or budget cuts to achieve the desired result. Naturally, neither one of these offerings is reasonable due to the fact that it is impossible for our current society to realize the correct levels of freedom, solidarity, and equality that would be necessary to achieve either of these positions. Therefore, it is the recommendation of this author that the ultimate approach would necessarily penalize (tax) all citizens equally; regardless of their economic stature within the economy (Etzioni, 1993). In this way, the government would be able to highly equitable distribute the tax burden among all of its citizens. Additionally, there would no longer be a disincentive for those that made less to attempt to make even more as all citizens would be equitably dealt with in terms of their overall level of