The Influence of Financial Markets on Countries' Economic Life (original) (raw)
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Global financial markets play an essential role in the economic growth and evolution of international relations. It allows rational and efficient distribution of monetary resources between those who save and those who invest and by that it supports flow of the capital. In the recent year’s importance of financial markets has largely increased, which can be seen in the rapid change of statistics of the number and volume of market. Moreover, development of different financial instruments stimulates the growth of businesses which in the end result in positive trend of the country`s economic indexes. Considering that expansion of mobilization and redistribution instruments of financial markets has positive impact on growth of economy, this article tracks down history of establishment and main essences of global financial market, as well as changes which can be tracked throughout these years.
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FINANCIAL DYNAMICS AND ECONOMIC GROWTH: THE CASE OF TURKEY
Within the globalization process, competition around the world has been sharpened and, the economic growth of countries has become influenced by each other. In this process, which accelerated after 1980, the developments in the financial field made the effect of globalization on national economies much more rapid and deep. Due to this critical importance, the relationship between financial development and economic growth has been frequently questioned in recent years. Economic growth is among the primary policy tools for people, societies, and governments to meet the needs and provide opportunities. Stable economic growth allows for increased welfare, poverty reduction, and better quality of service in areas such as defense, education, and health. Therefore, the origin and nature of growth have been questioned since the early periods of modern economics (Türkoğlu, 2016: 84). Here, economic growth can be considered as an increase in real GDP per capita, or with a more analytical approach, production possibilities frontier’s shift to the right due to the increase in factors of production and the technology involved (Acar, 2004: 177-179). Savings and investments should be directed in the economy in order to raise the standard of living. The increase in investments, directly and indirectly, affects macroeconomic variables, especially the national income level. In modern societies, investments and savings that will finance investments are separated. The interaction between the two segments is carried out by the financial system (Bozoklu and Yılancı, 2013: 166-167). The relationship between financial development and economic growth occurs at this point. Financial development is defined as an increasing variety of tools used in the financial market and making these tools more widely available (Erim and Türk, 2005: 23-24). The financial system, on the other hand, is a whole formed by the economic actors, markets, tools, and organizations coming together to perform various functions together in an economy. The function of transferring savings to investments is realized through the financial system. Therefore, the financial system is the determinant of the micro and macro performance of the economy. The financial system consists of lenders, borrowers, financial intermediaries (institutions), financial instruments, and legal-institutional arrangements (Afşar, 2007: 189-190). The main function of the financial system is to transfer funds from units that have excess funds in the economy to units that need funds. The financial system fulfills this function through financial instruments, intermediaries, and legal regulations that shape the behavior of these units. The increase and development of financial intermediaries occur by creating new financial instruments and making new legal arrangements. Thus, it is possible for the financial system to have a stable structure, to develop and to feed the real economy. The development of the financial sector includes both financial expansion and financial deepening. Financial expansion is associated with the spread of financial services and the growth of financial institutions, while financial deepening can be expressed as per capita financial services and an increase in the ratio of income in institutions or financial assets. The development of the financial sector through the expansion or diversification of financial markets enables a better allocation of resources (Aslan and Korap, 2006: 2). Financial systems emerge as an important factor in the economic growth process, as they undertake the function of providing funds to spread new technologies and realize capital accumulation. Financial systems, which are developed and fulfill their functions effectively, can direct small-value deposits in the hands of individuals to large investments. By making investment diversification possible, it reduces the risks of savers. It can increase efficiency and consequently economic growth by undertaking functions such as reducing the costs of collecting and evaluating the information on projects to be implemented and monitoring the management of resources through its specialized institutions (Aslan and Küçükaksoy, 2006: 26). It is very important for the economic growth that the financial sector mediates between savings and investments (Contuk ve Güngör, 2016: 90). In the financial system, especially in the banking system, besides supporting investments, they also affect the real economy through consumer loans. Banking system developments reduce consumer loan costs and increase their volume. This increases total demand and supports economic growth (Ağayev, 2012: 157; Demirdöğen and Kaplan, 2020: 37-38). Since the financial development level can affect foreign capital, it is very determining for developing countries that need to eliminate the capital shortage. These countries generally try to attract capital to their countries by increasing the interest rate. It is possible to reach potential economic growth if that foreign capital used in more productive areas, but this relationship is controversial (Özdemir, 2020: 42). It is generally accepted that the existence of a developed financial system is important for directing the savings to the economy. However, there is no consensus on how to measure financial development. Different studies and different institutions can use different criteria to measure financial development. (Kandır et. al., 2007: 312). One of the most widely used of these criteria is the Financial Development Index prepared by Svirydzenka (2016) and published by the IMF.
Financial Markets in Bosnia and Herzegovina: Current Situation and Trends
2016
The financial system of Bosnia and Herzegovina is a bank-dominated system. In the financial system there are two stock exchanges together with banks. Financial markets in Bosnia and Herzegovina are thin and illiquid. Authors in this paper will analyse the situation in financial markets through value of stock exchanges index on time series in the period 2005-2015. Changes in the economic and financial environment have an impact on trends in financial markets. So, the second aim of this paper is to examine the correlation between changes in economic measured by indicators (GDP, unemployment rate, inflation, monetary aggregates and interest rate on loans and deposits) and trends in financial markets.