Financial development and economic growth nexus: a time-series evidence from India

Author: Singh, Tarlok

Source: Applied Economics, Volume 40, Number 12, June 2008 , pp. 1615-1627(13)

Publisher: Routledge, part of the Taylor & Francis Group

Buy & download fulltext article:

Price: $50.43 plus tax (Refund Policy)

Abstract:

This study examines the relationship between financial development and economic growth in India for the period 1951-52 to 1995-96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969). The Johansen (1991) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980), and the Toda and Yamamoto (1995) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.

Document Type: Research article

DOI: http://dx.doi.org/10.1080/00036840600892886

Affiliations: 1: Department of Accounting, Finance and Economics, Griffith Business School, Griffith University, Brisbane, Queensland- 4111, Australia

Publication date: 2008-06-01

More about this publication?