Stephen Cecchetti, Economic Adviser at the Bank for International Settlements (BIS) and Head of its Monetary and Economic Development, writes:

Turning to some facts, consider the relationship between the size of a country’s financial system and growth. We [economists] teach that, because it allocates scarce resources to their most efficient uses, one of the best ways to promote long-run growth is to promote financial development.

Cecchetti goes on to state that this has not always been borne out empirically. What are facts you remember—either from his article or from other sources, including class lectures and discussions—that show that the financial system seemed to NOT always have allocated scarce resources to their most efficient uses and has NOT always promoted long-run growth? Why hasn’t financial sector development always been appositive thing?

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In the free market economic system the scare resources are allotted with the support of price mechan... View the full answer