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Lessons to Be Learnt by Emerging Markets from Developed Financial Markets

Essay by   •  July 22, 2012  •  Research Paper  •  1,637 Words (7 Pages)  •  1,657 Views

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Lessons to be learnt by emerging markets from developed financial markets

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Abstract

The present regarded industrialized countries are seen to be much enjoying the benefits that the economy is offering. The so called first world countries have continued to experience faster economic growth because of the influence of the stronger and well established both financial and security market. The research paper in it's entirely, considers the lessons that the emerging financial markets from the developed and the developing can learn from the developed financial institutions. However, the basis of the paper is on U.S, England, Japan and then Germany.

Introduction

Traditional studies of the above mentioned four countries have continued to place some emphasis on the explanations concerning acceleration of the growth that have continued to occur within their economies. Most of the factors that are considered relate to increased productivity in labor, increased innovation in technologies, expansion in international relationship in trade and revolution n the financial infrastructures. All these occurrences preceded the present development within these countries. Economic historians continue to neglect the importance of the financial institutions, the paper through the studies of (Rousseau and Sylla 1999, p. 2), shows that there are still some lessons that the emerging nations and financial systems can learn from the impacts of both the financial and securities towards growth and development.

Revolution of the developed countries

Before the financial and security markets developed in the countries under the study in better part of 17th and 18th centuries, there was more development in agriculture, rail systems and canals. All these were happening because of the innovations in technology. Though the economies experienced some output growth in their economies, this was at a lower level in comparison to the emergency of good financial infrastructures. The focus on the broader aggregates in the economy helps to uncover the role offered by the financial institutions towards realization of rapid growth. This first came with the smaller commercial, service and the producing sectors. Varying from the agricultural contribution, the sectors stated experiencing faster growth following 1790s (Rousseau et al. 1999, p.2).

Emergence of the financial sectors

Following any standard as stated by Rousseau et al. (1999, p. 4), the current modernization by the developed nations, the rapid growth of capital with the assistance of the banking institutions together with the security markets have contributed in mobilization of the capital both from the domestic and foreign consumers. And those who would like to invest their resources in order to get more returns from their investments. As noted by Rousseau et al. (2001, p. 23), that before 17th century, there as no well developed financial systems within the countries under study. This made the country governments to experience higher amounts of debts after war. The money stock existing within the countries were in form of fiat paper money, foreign coins that had been invested by the foreign citizens in U.S and other three states (Rousseau et al. 1999, p. 12). The poorly developed financial infrastructure within the states, just like the emerging nations failed to mobilize most of the resources that were in the hands of both the private and public.

To overcome the challenges, the governments were forced to come up with strategies that could ensure well structures banking models. As described in their report (Rousseau et al. 2001, p. 23) such a better system the first to be developed and implemented by the republic of Dutch in early 17th century, however small it was by then, it enabled its government to gain more power both in economics and political undertakings (Rousseau et al. 2001, p. 8). Based on the historical perspective, the report shows that a better financial model should have five key attributes. As mentioned by Rousseau et al. (2001, p. 4), is that it should have a better mananagent of its public and debts finances. The second aspect considers arrangements that ensure stability in the monetary policies. Thirdly, the government should create incentives that help in creating of both domestic and international banks. Fourth, the system should ensure that there is creation of an independence central bank for the state. This helps in setting and dealing with the economic policies that create desirable economic conditions in the economy. The last aspect under consideration is the development of a well established security markets by the government.

Once the government adopts and implements on the above mentioned five key issues in relatio9n to the banking and finance Rousseau et al. (2001, p. 5), mobilization of the resources both in the domestic and foreign hands becomes easier. In the context of globalization, which refers to offering of financial assistances across the border and aided flow of capital, international banking and increased crisis within the financial markets and

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