Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models
AbstractUsing contemporary models this paper explores the time-series properties of financial infrastructure and economic growth indicators to investigate the nexus between developments in financial intermediation with the economic growth for India over the 1971-2004 periods. Both over short-run and the long-run perspective the paper seeks to answer; whether the financial infrastructure variables are complementary or a substitute for economic performance? and in what way economic growth is affected by the financial infrastructural development indicators? We find evidence in favor of a short run “financial infrastructure led economic growth”. Finance is found to be a leading sector only in the short-term link in Granger causality tests with stationary variables. The study provides robust empirical evidence in favor of supply leading hypothesis for the Indian economy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6154.
Date of creation: 11 Nov 2007
Date of revision:
Finance; Infrastructure; Development; Economic Growth; Lag-lead; Granger Causality; Cointegration; VAR; VECM; India;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-15 (All new papers)
- NEP-CWA-2007-12-15 (Central & Western Asia)
- NEP-MAC-2007-12-15 (Macroeconomics)
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