Financial Development, Productivity, and Economic Growth

1. Define the following terms used in the reading:
   1. financial development
   2. diminishing returns to capital accumulation
   3. endogenous growth theory

2. How can well-developed financial institutions and markets promote a country's economic growth?

3. How does the explanation of economic growth provided by "new" growth theory differ from that of traditional growth theory?

4. Which is more important, the effect of financial development on capital accumulation or its effect on increasing productivity?

5. How can financial regulation and enforcement be strengthened to advance economic growth?

6. What short-run problems can accompany financial system development?

Source: "Financial Development, Productivity, and Economic Growth." Diego Valderrama, Federal Reserve Bank of San Francisco FRBSF Economic Letter, No. 2003-18, June 27, 2003, pp. 1-3.