Financial Market Deepening and its Impact on Development of Bihar A Comparative Study of Pre Reform and Post Reform Period

Abstract

newline Financial Market Deepening and its Impact on Development of Bihar: A newlineComparative Study of Pre-Reform and Post- Reform Period newlineAbstract newlineThe definition of financial deepening becomes crucial when the need arises to measure its newlineimpact on economic growth. A classical definition of financial deepening was given by newlineEdward Shaw in 1973. He defined financial deepening as the process of accumulation of newlinefinancial assets at a faster pace than the accumulation of non-financial wealth (Shaw 1973, 23-26). Other studies have tried to measure financial deepening as the level of financial newlineintermediation or the money supply in the economy (Fritz 1984, 91-111). However, Fritz newline(1984) argues that single measures of assets in the economy do not provide good measures of financial deepening and suggests that all means of financing should be taken into account while measuring the impact of financial deepening on growth. newlineOn the other side of spectrum, financial development has been summarized as a process that involves financial markets, intermediaries and instruments which enable trading, allocation of resources, mobilization of savings and risk hedging (Levine 2005, 866-934). This definition captures the whole process of financial deepening as it takes into account all means of financing, whereas money supply is provided through different financial institutions (bank and non-banking institutions) in different markets (money market, capital market, debt market) using different financial instruments (McDonald and Jahan 20111, 16-19). newlineIn theories of economic growth, a crucial role is accorded to investments nevertheless, not newlineenough attention is paid to how investments are financed or, more precisely, where do firms newlineand industries find capital to make these investments. In fact, academic literature of economic growth has for decades ignored the role of finance in economic growth, and thus, has not included it in traditional models of growth. It is only in recent times that some economists have begun arguing that financi