3. Role of financial investment networks in adaptation of economies

Banks and investment institutions provide money to such businesses that not only require investment for growth, but also present the best promise for profit, and hence provide good returns for the investment. Businesses in turn use this money to generate profits by providing ever-changing repertoire of products and services to fulfill changing needs of its customers [ Werker 2003 ; Schumpeter 1934 ]. In economic models it is hence believed that banks and equity markets, dynamically modulate the flows of human, material, and other resources across networks of competing business entities in an economy by changing the levels of investments across businesses entities and economic sectors based on their growth rates and predicted returns. Hence, in doing so banks and financial investment networks serve as community level modulators by investing across a mix of competing business entities and sectors of the economy to derive optimum overall growth for the economy as a whole. Growth in banking and financial markets is hence often correlated with growth and development in an economy [ Boot and Thakor 1997 ; Schumpeter 1934 ; Levine 1997 ].

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