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Capital market development, corporate financing pattern and economic growth in India

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Author Info
R.N. Agarwal (Institute of Economic Growth)
Abstract

Literature suggests that there might exist some correlationship between the financial sector and capital market development, and the growth of real GDP. There have been several studies on this subject but the results are inconclusive. Hence, the objective of the present study is to contribute to the existing debate by analysing the Indian data beginning with the 1980s. The study supports the Levine and Zervos's argument that well-developed stock markets may be able to offer a different kind of financial services than the banking system and therefore provide an extra impetus to economic activity. Also, the two main parameters of capital market development namely, size and liquidity are found statistically significant to explain the economic activity. Correlation analysis reveals that the banking sector and capital market development indicators are complementary and not a substitute for each other. The present study has also inferred that the right variable to be a proxy for the expansion of economic activity is the totality of funds mobilised by the corporate sector from alternative sources and not merely the credit offered by commercial banks as has been assumed in earlier studies.

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Publisher Info
Paper provided by Institute of Economic Growth, Delhi, India in its series Institute of Economic Growth, Delhi Discussion Papers with number 20.

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Length: 19 pages
Date of creation: 2000
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Handle: RePEc:ind:iegddp:20

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. Levine, Ross & Zervos, Sara, 1996. "Stock market development and long-run growth," Policy Research Working Paper Series 1582, The World Bank. [Downloadable!]
    Other versions:
  2. John H. Boyd & Bruce D. Smith, 1995. "The evolution of debt and equity markets in economic development," Working Papers 542, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June. [Downloadable!] (restricted)
    Other versions:
  4. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," World Bank Economic Review, Oxford University Press, vol. 10(2), pages 223-39, May.
  5. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," World Bank Economic Review, Oxford University Press, vol. 10(2), pages 341-69, May.
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