A model of growth and finance: FIML estimates for India
AbstractMany empirical works addressed the nature of the relationship between economic growth and financial developments. Although these studies concede that they are interdependent, they have used single equations methods for estimation. In particular in the country specific studies the Granger causality tests are applied to equations estimated with the single equations methods to determine whether financial developments cause growth or vice versa. This paper uses the full information maximum likelihood method to estimate a two equations model of growth and finance for India. We also argue that in virtually all these empirical works the specification of the output equation is unsatisfactory. Our results with the Indian data show that there is no evidence to support the view that finance follows where enterprise goes. Furthermore, financial developments have a small but significant permanent growth effect in India.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8763.
Date of creation: 14 May 2008
Date of revision:
Steady State Growth Rate; Financial Development; Solow Model; Simultaneous Equation Model and FIML Estimates;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-24 (All new papers)
- NEP-CWA-2008-05-24 (Central & Western Asia)
- NEP-DEV-2008-05-24 (Development)
- NEP-MAC-2008-05-24 (Macroeconomics)
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