That financial sector development is intimately linked to economic growth is now widely accepted, although views may differ about the exact nature of the causal relationship. Most analysts argue that the relationship between financial sector development and growth is bidirectional: financial sector development, through its effects on both saving and investment, influences both the transition to and the nature of the steady growth path; economic growth, in turn, facilitates the deepening and broadening of financial markets. This bidirectional relationship provides for a virtuous cycle, where higher growth leads to the faster development of financial markets and where faster financial market development leads to higher growth. It can also result in a vicious cycle, in which growth and development of the financial sector are both stymied.
