Financial System and Sustainable Growth

Living reference work entry
Part of the Sustainable Development book series (SD)


In this chapter, we analyze the role of financial system in sustainable economic growth. The financial needs of firms differ at each stage of the sustainable growth process, and therefore the financial system has to respond to these changes by changing not only the size of the external financing but also the way to do it. This indicates that an evolving financial system is necessary to achieve sustainable growth. At the low and medium level of economic complexity, providing external finance to newly emerging manufacturing investments and SMEs is more important, and therefore a well-functioning banking system plays a crucial role in promoting economic growth at this stage. In the later stages of economic development, providing external finance to R&D- and technology-intensive industries becomes more important for sustainable economic growth. Since a market-based financial system is superior to a bank-based financial system in fostering innovative technologies and improving corporate governance, stock markets, bond markets, and venture capital become more important in the later stages.


Finance Banks Stock market Growth Investment Innovation 


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Copyright information

© Springer Nature Singapore Pte Ltd. 2017

Authors and Affiliations

  1. 1.Department of Economics & Finance, School of Business and Management SciencesIstanbul Medipol UniversityIstanbulTurkey

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