Chapter a country belonging undeveloped financial system cannot extract

Chapter
One

Introduction

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1.1 Background of the
Study

Developed
countries have already reached the threshold level of development to capitalize
key development indicators. The mentionable key development indicators are ICT
diffusion, financial development, labor productivity and economic growth for those
economies learning from different literatures. If the developing countries
nurture these development indicators as their former, it will enable them to
flourish the development of their country. So, the purpose of the study is to
investigate the nexus amid ICT diffusion, financial development, labor
productivity and economic growth in developing countries. How they are linked
up with one another, the discussion will clarify these puzzles. First puzzle is
finance-growth nexus.

Beck
et al. (2011) said that financial development is an important explanatory
variable that induce economic growth. Since the development of financial
markets make the environment of the economy more efficient of a country
(Levine, 1997). A country with the developed financial system flourishes the
economy more quickly than that with undeveloped financial system (Beck et al.,
2011). Since a country belonging undeveloped financial system cannot extract
the benefits from the technological innovation and thus they gradually deviate
from growth rate of global Production Possibility Frontier (PPF) (Aghion et
al., 2005). On the contrary, the developed financial system helps the marginal
people of a country to keep pace with the growing economy (Beck et al., 2011).
So it can be prescribed that financial development is the requirements for not
only the economic growth but the alleviation of poverty. The puzzle of
finance-growth nexus is whether for the economic development financial
development is preferable policy to economic growth or economic growth is
preferable policy to financial development or both should get priority
(Odhiambo, 2007). Since the financial sector of a country enables to make
mobilization of savings, redistribute resources from sick to profitable ones,
ensure proper distribution of credit, accumulate capital, enables smooth flow
of goods and services, facilitate trade and so on (Levine, 2005). These all are
the measures of economic growth. So the improvement of financial sector can
enhance economic