Contemporary issues in development finance Essay - 2

Contemporary issues in development finance - Essay Example world, the emerging economies are also suffering from fragile public finances, low Foreign Direct Investment (FDI), huge unemployment and high inequality. Many countries such as Mexico, Greece, Spain and Portugal etc. suffers from high inequality and poverty due to utilization of only one engine of growth. Financial development aims to recover such countries from poor economic condition through ensuring equitable capital allocation, monitoring investments and corporate governance, mobilization of savings pool and managing risk. However, some of the economists are of the opinion that the policies taken by development finance leads to widen the gap of inequality further (Clark, 2006). In this paper, the relationship between inequality and financial development will be critically analysed in the light of theories and empirical evidences. For the purpose of analysis, the case of Mexico will be incorporate in order to examine the level of inequality and poverty exists in that particular e conomy and how the measures of financial development is helping the economy to progress from its current economic situation. Development finance holds huge importance mainly for promoting economic growth through capital accumulation, mobilization of savings for technological inclusion and poverty eradication. The system also aims to encourage the flow of foreign capital. In fact, a meta analysis done on the basis of 67 empirical studies have shown strong correlation between the metrics of development finance and economic growth. Analysing the cases of courtiers with sound tend of economic development, it has been identified that development finance has worked as a driver of economic growth in those countries. The system also strives for better risk management that helps the vulnerable group of the society to obtain opportunities for enhancing their productivity and expands the investment avenue so that the group can generate higher income. Development finance facilitates the growth of