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Banks, Financial Markets and Economic Development: some evidence for India by

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  • Subrahmanyam Ganti

    (Indian Institute of Management (IIM))

  • Kalluru Siva Reddy

    (Gokhale Institute of Politics and Economics)

Abstract

The stages of economic- development model postulates that an emerging economy passes through a structural transformation process from a traditional agrarian structure to a service-sector oriented stage via the industrial stage. In this process, the financial system plays a significant role, first through the bank-oriented financing to a market-oriented financing of the development process. The development process is said to pass through the bank-oriented stage to a more market- oriented stage via the market-oriented stage. In this process, the bank-oriented and the market-oriented stages of financing are said to become complementary sources of finance from a substitutive role. The objective of this study is to empirically verify this hypothesis in a production function framework for the Indian economy. For this purpose we employ a variable-elasticity of substitution function-which is a special case of the translog production function of Christensen, Jorgenson and Lau (1973). Our empirical results suggest evidence from a disappearing role of substitutability into a complementarity between the two sources of finance in India for the period 1992-93 to 2018-19.

Suggested Citation

  • Subrahmanyam Ganti & Kalluru Siva Reddy, 2022. "Banks, Financial Markets and Economic Development: some evidence for India by," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(3), pages 693-700, September.
    • Handle: RePEc:spr:jqecon:v:20:y:2022:i:3:d:10.1007_s40953-022-00318-7
    DOI: 10.1007/s40953-022-00318-7
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    References listed on IDEAS

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