There has been a debate on whether private equity affects economic growth of a region or the reverse effect. Therefore there has been need to evaluate the interrelationship between private equity and economic growth across the globe while considering the influence of the financial environment. Hence, this paper analyses these interrelationships using a theoretical approach. The key findings are that private equity tends to increase when there is economic growth in an economy as underpinned by the economic growth models which contend that for economic growth to be sustainable there should be continuous advancement in technical knowledge mainly in the form of new products, processes and markets. Furthermore, a well developed legal and regulatory framework would lead to increased financial activities in a country hence facilitating exits which would result to a more favorable legal environment that induces venture capitalists and PE funds to invest more often in the home country
Keywords: Financial Environment, Private Equity, Venture Capital, economic growth
