how can efficient allocation of capital lead to economic growth?

Expert Solution

Yes thats true that the efficient allocation of capital leads to economic growth.

Financial markets other institutions associated with financial markets help in financing decision making and also in the efficient allocation of capital which leads to higher growth.There has been evidences that the financially developed countries have greater allocation of capital which leads towards the development of industries and enhances the ability of the economy to produce more goods and services , this higher productivity spurs growth in the economy. Financial markets improve growth because they improve the allocation of capital. The primary channel towards improved growth is accumulation of physical and human capital.

In highly developed economies, greater allocation of capital is made to the industries which have a very high potential for growth and his in turn leads to economic growth. Countries which do not have well developed financial markets are at a loss as these financial markets help channelise the savings and investments because of improved liquidity that leads to capital accumulation. They also help in the international flow of funds.

jeff jeffy answered 2 years ago

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how can efficient allocation of capital lead to economic growth?

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