Masoud Baniasad Afshar
The main purpose of this paper has been to discuss the effects of some of the key macroeconomic variables on financial development and economical growth. The financial system can play an important role in economic development. Theory suggests that effective financial institutions and markets that help overcome market frictions introduced by information asymmetries and transaction costs can foster economic growth through several channels. Specifically, they help (i) ease the exchange of goods and services by providing payment services, (ii) mobilise and pool savings from a large number of investors, (iii) acquire and process information about enterprises and possible investment projects, thus allocating society's savings to its most productive use, (iv) monitor investments and exert corporate governance, and (v) diversify and reduce liquidity and inter-temporal risk. However, economists still do not agree on the role played by finance in economic development. The relationship between financial development and economic growth has remained as an important issue of economic debate. An important number of theorists, starting with Schumpeter, have emphasized the role of financial development in better identifying investment opportunities, reducing investment in liquid but unproductive assets, mobilizing savings, boosting technological innovation, and improving risk taking. However, not all are convinced about the importance of the financial system in the growth process
