Finance, economic growth and financial system functionality: A Post-Keynesian approach

Abstract

This paper analyzes the role of the financial system to economic growth, and the concept of 'functionality' of the financial system under a Post Keynesian approach. It argues that in such theoretical approach a functional financial system is that supplies credit in order to meet the agents' liquidity needs so that they can effectuate their expenditures, and at the same time is able to create suitable financial tools to fund the short term debts of the investors' firms. Therefore, such financial system can allow a higher capital accumulation rate that would be able by the simple accumulation of previous savings. The paper stresses that the concept of financial system functionality presumes the existence of a diversified structure of financial institutions and financial assets that are able to offer financing alternatives to the agents' (mainly firms) expenditures.