Financial intermediation and Economic Growth Financial intermediation and Economic Growth | EUREKA
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Financial intermediation and Economic Growth

Quickly development of banking sector, has separate implication in monetary sector. This thing is because of development of fast financial sector will cause various monetary magnitudes to become changing, having implication to more and more (the complex monetary policy transmission). In line with increasingly grows it banking system, monetary policy effectiveness increasingly depends on to condition of financial sector. This thing happened because creation process of money no longer fully determined by central banking policy but also influenced by behavior of banks in doing credit contraction. In this bearing, money supply no longer have the character of exogenous but rather haves the character of endogenous, causing monetary policy concept must be extended by entering factors which can influence behavior of bank and debtor in doing credit insurance expansion and money supply. Thereby, policy in banking area no longer solely holds important role in expansion of monetary infrastructure for the agenda of overcoming gap between savings and investment but also plays important role in looking after stability of macroeconomics through its (the interrelationship with monetary policy effectiveness).

The economists initially has difference of opinion sight about the role of monetary intermediary in economic development. Firstly opinion about the role of important intermediaries, while assessing second opinion on the contrary. Bagehot and Hicks in Zulverdi (2005), for example, believes that banking system plays important role in mobilization of fund to finance industrialization era in English. And so do with Schumpeter (1911) what looks into that banking system push technological development passed its(the role in identifying and finances the entrepreneur having ideas innovative. On the contrary, Robinson (1952) sees that banking system is not economic activity impeller but exactly development of banking system which depend on development of corporate world. Lucas (1988) also criticizes opinion which too looks into important the role of monetary factors in chartered investment counsel growth.

In development hereinafter, firstly opinion tends to increasingly popular. Various studies compare pass by quickly state and analysis at industrial level and company concludes that banking system plays vital role in pushing chartered investment counsel growth. Literature indicates that development of banking system influences level of savings, investment, innovation of technology, and growth of long-range chartered investment counsel in a state. Various empiric studies even proves that development of banking system can predict development of chartered investment counsel forwards. In financial sector, for the agenda of overcoming gap between savings and investment, effort moves domestic source of fund is done by developing financial sector infrastructure, especially banking industry.

As impact of the limited motion space of financial sector hence happened is so-called by McKinnon and Shaw as "financial repression" what causes "shallow finance", that is channel doesn't of fund (buying power) efficiently to activities of efficient and productive chartered investment counsel also, so that economic growth become blocked.

Levine (1997) divides the functions of the financial system into five basic functions, namely:
  1. Savings mobilization function, The financial system is functioning properly is its ability to raise funds with transaction fees and costs to a minimum of information. Here the credibility to play an important role as a credible financial system will be able to collect public funds with low costs.
  2. Information collection and allocation functions funding sources, Financial system that functions well is the ability to collect, process and translate information into investment decision-making tool that looks at price movements of financial instruments that reflect the fundamental condition.
  3. The function of monitoring and supervision of company, The financial system is functioning properly the low cases of fraud by management because the monitoring of company management.
  4. Risk management function, Financial system that functions well is the ability to better diversify risk.
  5. Function facilitate transactions, A good financial system is the existence of mechanisms of financial transactions fast, secure, and low cost.

Economic Growth And Productivity Increase
Poor countries densely populated and many live on the extent and limits of living raise difficulties. high living standards and growing. While some developed countries like United States and Canada, West European countries, Australian, New Zealand, and Japan enjoys life level is height that is increasing from time to time. Population means added labor and legal validity Fewer Added results lead to the smaller increase in output, decline in average product and the decrease in living standards. Causative the low of earnings in nations is growing is increase of a real resident quickly which is not made balance to with strength pushing economic growth in the form of increase of amount and quality of source of nature, capital, and technology progress (Levine and Loayza, 2002).

Meanwhile increase of goods amounts capital, technology progress, and increase of quality and skill of labor in advance nations delivers big output of which can increase life level. With existence of level of available and high productivity goods of capital will push chartered investment counsel growth (Diamond and Dybvig, 1983).

Affecting The Economic Growth Factors
The factors that affect economic growth include natural resources, human resources, capital resources, and expertise or entrepreneurship (Digg, 1983).
  1. Natural Resources, Natural resources includes land and natural resources such as soil fertility, climate/weather, forest products, mining, and seafood, greatly affect a nation's industrial growth, especially in terms of supply of raw materials production. Meanwhile, the expertise and entrepreneurship needed to process raw materials from nature, becomes something that has a higher value (also known as the production process).
  2. Human Resources, Human resources also determine the success of national development through the number and quality of the population. Large population is a potential market to market production results, while the quality of the population determines how large the existing productivity.
  3. Capital Resources, Human capital needed to process these raw materials. Capital formation and investment is intended to excavate and process the wealth. Capital resources in the form of capital goods is very important for the smooth progress and economic development because of capital goods may also increase productivity.
  4. Expertise or Entrepreneurship, According Schumpeter, mover of progress is an entrepreneur with ideas for new products, new ways while yielding products or some other innovation.

Theories And Models of Economic Growth
In the era of classical economists like Adam Smith in his essay book entitled An Inquiry into the Nature and Causes of the Wealth Nations, to analyze because the entry into force Economic growth factors that determine economic growth. After Adam Smith, several other classical economists like Ricardo, Malthus, Stuart Mill, also discussed issues of economic development.
  1. Schumpeter's Theory of Innovation (1911) , In this theory emphasizes the innovation factor entrepreneurs as economic growth engines capitalistic. The dynamics of competition will encourage this.
  2. Harrot-Domar Growth Model (1969), This theory emphasizes the concept of natural growth rate. Besides the quantity of labor input is also taken into account because it increases the efficiency of education and this exercise. Model can determine how much savings or investments needed to maintain natural economic growth rate is the number of natural economic growth rate multiplied by the capital-output ratio (Diamond, 1984).
  3. Leontief Input-Output Model, This model is a picture of the flow and the relationship of each industry. By using this table, the planning of economic growth can be done consistently because it can be known picture of the flow of input-output relationship of each industry. Relationship is measured by input-output coefficients and in the short term or unchanging considered constant (Bernanke and Gertler, 1986).
  4. Lewis Growth Model , This model is a model that explains the special case of a developing country of many (dense) populations. The emphasis is on the transfer of excess population to the modern sector of agriculture sector in the industrial capitalists who financed from the surplus profits (Bernanke and Gertler, 1986).
  5. Rostow's Economic Growth Model, This model emphasizes stage of review on-stage history of economic growth and the characteristics and requirements of each. These stages are stages of a traditional society, a prerequisite stage of take-off, take-off phase, stage of movement toward adulthood, and finally high consumption stage (Fuerst, 1994).

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