The Impact of Financial Development on Resource Allocation: A Quantitative Approach

The degree of financial development exerts an impact on the movement of resources, thereby directing the reallocation of resources. This aspect is quantified by the ratio of financial institutions' year-end loan balance to the Gross Domestic Product (GDP) as a measure of financial development. The level of financial development affects the flow of factors, thus guiding the redistribution of factors. In this regard, the financial development is measured by the proportion of the year-end loan balance of financial institutions to GDP.