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Demand following and supply leading relationships: An empirical analysis for India

Author

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  • Banerjee, Saumya S
  • Ghosh, Saibal

Abstract

The study investigates the effects of activities of financial institutions (FIs). In particular, an econometric study has been undertaken to examine the ‘supply-leading’ and ‘demand-following’ characteristics of FI activities. The investigation is conducted by employing time series data using certain macro variables over the period 1962-63 to 1996-97. Our analysis shows the existence of a strong supply-leading (SL) relationship from real disbursements to real investments. The SL relation is further confirmed through the Sims causality tests. The demand-following (DF) relationship from real investments to real disbursements finds weak confirmation via the Sims causality test. Evidence therefore supports the presence of a strong SL link in the Indian context.

Suggested Citation

  • Banerjee, Saumya S & Ghosh, Saibal, 1998. "Demand following and supply leading relationships: An empirical analysis for India," MPRA Paper 22443, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:22443
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    References listed on IDEAS

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    1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    2. Wang, Ping & Yip, Chong K., 1992. "Examining the long-run effect of money on economic growth," Journal of Macroeconomics, Elsevier, vol. 14(2), pages 359-369.
    3. Odedokun, M. O., 1996. "International evidence on the effects of directed credit programmes on efficiency of resource allocation in developing countries: The case of development bank lendings," Journal of Development Economics, Elsevier, vol. 48(2), pages 449-460, March.
    4. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
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    Cited by:

    1. Roseline Nyakerario Misati & Anne Kamau & Hared Nassir, 2019. "Do migrant remittances matter for financial development in Kenya?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-25, December.
    2. Misati, Roseline Nyakerario & Kamau, Anne, 2018. "Do migrant remittances matter for financial development In Kenya?," KBA Centre for Research on Financial Markets and Policy Working Paper Series 30, Kenya Bankers Association (KBA).

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    More about this item

    Keywords

    demand following; supply leading; India;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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