How finance relates to stability and development
Many consider financial development to be less positive for the accumulation of capital than it was in the past. This presents a need to redefine the role of finance and financial innovation for the allocation of resources. An expansion of the financial system has brought with it the perception of greater instability and an increase in risk. In turn, this poses finance as dangerous and a hindrance of growth. REFIST (Rethinking finance for stability and development) was an EU-funded project that addressed these issues. It specifically looked at inequality, inefficiency and instability in relation to finance. Researchers considered the extent to which finance intensifies income inequality. They examined whether financial growth causes excessive public spending as well as whether finance and financial development is actually good for growth. The research addressed all of the issues both theoretically and empirically. Results show that governments and public authorities have often underestimated the signals of a financial crisis. This is because they operated under the false premise that past mistakes have been reconciled, resulting in more stable financial systems. REFIST also found that financial institutions and financial markets can strongly influence real resource allocation and affect growth and economic development. Therefore, an efficient financial system is a requirement for economic stability and important for growth and development. This means that financial reforms are vital to increase growth and to ensure a better resource distribution within countries. Results of the investigations can help redefine the role of finance and financial innovation in the allocation of resources. By pivoting on four main issues, the objective of the research is indeed to provide an answer to crucial questions that have emerged from recent economic events.
Keywords
Finance, stability, income inequality, financial development, REFIST, resource allocation
