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The Dynamic Relationship of Domestic Credit and Stock Market Liquidity On The Economic Growth of The Philippines

The document discusses how financial development and the banking sector impact economic growth in the Philippines from 1995 to 2018. It focuses on domestic credit and stock market liquidity's dynamic relationship with economic growth. The author learned that financial market development through efficient capital allocation can contribute significantly to economic growth by directing savings and investment in ways that promote capital accumulation and production.

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Dianne Mae Saballa Cruz
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32 views3 pages

The Dynamic Relationship of Domestic Credit and Stock Market Liquidity On The Economic Growth of The Philippines

The document discusses how financial development and the banking sector impact economic growth in the Philippines from 1995 to 2018. It focuses on domestic credit and stock market liquidity's dynamic relationship with economic growth. The author learned that financial market development through efficient capital allocation can contribute significantly to economic growth by directing savings and investment in ways that promote capital accumulation and production.

Uploaded by

Dianne Mae Saballa Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CRUZ, DIANNE MAE S.

BSMA 2-1

ECONOMIC DEVELOPMENT (ECON 40163)

REACTION PAPER #6

“The Dynamic Relationship of Domestic Credit and Stock Market Liquidity on


the Economic Growth of the Philippines”

This paper focuses on how financial development related in the growth of a country’s
economy. It specifically tackles about banking sector of the Philippines for the period of 1995 to

2018. This paper was written and prepared by an Assistant Professor II, Abraham C. Camba and

by an Associate Professor IV, Aileen L. Camba both from the Department of Economics in
Polytechnic University of the Philippines.

Economic growth refers to an increase in the value of everything produced in the economy.
This means an annual rise in the nation’s Gross Domestic Product or Gross National Product, in

percentage terms. Economic growth increases the productivity potential of the economy, allowing
more to be fulfilled. Development in the economy improves job opportunities, encourages

enterprise and innovation. Sustained economic growth is necessary for every nation that wishes to

lift its standard of living and to ensure greater well-being for everyone. Real GDP per capita is a
more accurate indicator of economic growth; this measure takes into account both the gross output
of the country and the overall population. Economic growth is one of the most significant factors

for an economy to be stable. Combined with the other resources of Physical Capital or

Infrastructure, Labor and Industry, Technology and Natural Resources which be built and

coordinated to increase the productive potential of the country. And the most significant

determinant of economic growth is the performance and volume of the workforce.


Aside from what I’ve mentioned above, another factor that can also affect the economic

growth of one’s country is the financial market development . The stock market is a market where

producers and consumers trade commodities, financial instruments, foreign exchange as well as
other freely exchangeable items and value derivatives at transaction costs and at rates determined

by market forces. Establishment of the financial sector in developed countries and emerging

markets is part of the private sector development strategy to promote economic growth and reduce

poverty. The financial sector is made up of institutions, instruments and markets. Also it provides

a legal and regulatory system that enables transfers to be carried out through the extension of credit.
Importance of financial markets for economic development – some examples include: (1)
providing a trusted banking system to sustain household savings; (2) Mobile payment methods to
promote investment & business growth/cash flow, (3) Microfinance initiatives to promote local
entrepreneurship, (4) Insurance to cover farmers and other primary producers, (5) Foreign currency
exchanges to help companies import and export goods and services internationally, and (6) Capital

markets for emerging governments and businesses to collect fresh debt and equity. Financial

markets help to better direct the flow of savings and investment to the economy in ways that
promote capital accumulation and the production of goods and services.

I remember what we’ve studied on Financial Markets on how Financial System helps
households, business firms, and government agencies. The financial system consists of a network

of interrelated financial markets, intermediaries and services networks. Its function is to transfer

funds from parties that have available funds to parties that need funds. There are those who have
available funds because they spend less than their income, called fund providers. On the other
hand, there are those who have fund shortage because of deciding to spend more than their income,

called fund demanders. It’s like a win-win situation for all. I’m so pleased to know how one sector

can give so much contribution in the growth of the economy. In addition, as what I’ve read that a
flexible banking system that promotes easy accessibility for small and medium enterprises (SMEs)

to finance is important for increasing economic growth. Small firms are the heroes of modern

capitalism. The owners of small businesses are the noble drivers, the producers of jobs and the
plucky entrepreneurs that fuel the economy. Small companies make an enormous contribution to
national development and enable every person to have a source of income.

I think, after I’ve read the paper, I’ve learned a lot about financial market development
which what it mainly talks about. It helps to build a more effective capital allocation that will result

in higher output and will eventually contribute to economic development . Efficient capital

allocation happens when assets are invested in productive projects that yield returns to fund

suppliers and fund borrowers. Another thing is investment, it contributes to the share capital, and

the quantity of capital available to the economy is a primary determinant of its productivity.

Investment therefore leads to economic growth. As early as a student myself already know how

investing really important is. Attending seminars in related to financial management do encourage

me that as early as possible we learn how to manage our money. We should learn how to invest
on stocks, actually we’ve taught that as low as a hundred of peso we can already have stocks on

some large companies. But of course, we should all be careful as not all are verified and trusted

financial intermediaries. As early as a student, if we have some resources, we can already invest
to have a better future.

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