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Financial development, trade and growth triangle: the case of India

Author

Listed:
  • Salih Turan Katircioglu
  • Neslihan Kahyalar
  • Hasret Benar

Abstract

Purpose - This paper aims to investigate the possible co-integration and the direction of causality between financial development, international trade and economic growth in India. Design/methodology/approach - Annual data covering the 1965-2004 period have been used to investigate co-integration and Granger causality tests between financial development, international trade, and growth after employing unit root tests to see if the variables under consideration are stationary. Findings - Results reveal that there is a long-run equilibrium relationship between financial development, international trade and real income growth in the case of India. Furthermore, unidirectional causality was investigated that runs from real income to exports and imports, from exports to imports, M2 and domestic credits, from M2 to imports, from imports to domestic credits. Bidirectional causality has also been obtained between real income and M2, and between real income and domestic credits. Finally, no direction of causality has been obtained between M2 and domestic credits. Research limitations/implications - Expanded data can be used for further comparison. Practical implications - This study has shown that the supply-leading and the demand-following hypotheses cannot be inferred for the Indian economy alone themselves. And furthermore, the export-led and the import-led hypotheses again cannot be inferred for the Indian economy based on the sample period, 1965-2004. Originality/value - This study is the first of its kind which investigates the possible co-integration and the direction of causality between the financial development, international trade and economic growth triangle not only in the case of India but also in the relevant literature to the best of one's knowledge.

Suggested Citation

  • Salih Turan Katircioglu & Neslihan Kahyalar & Hasret Benar, 2007. "Financial development, trade and growth triangle: the case of India," International Journal of Social Economics, Emerald Group Publishing, vol. 34(9), pages 586-598, August.
  • Handle: RePEc:eme:ijsepp:v:34:y:2007:i:9:p:586-598
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    Citations

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    Cited by:

    1. Mahmoud Arayssi & Ali Fakih, 2015. "Institutions and development in MENA region: evidence from the manufacturing sector," International Journal of Social Economics, Emerald Group Publishing, vol. 42(8), pages 717-732, August.
    2. Shahbaz, Muhammad, 2012. "Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2325-2339.
    3. Qazi Hye & Wee-Yeap Lau & Marie-Aimée Tourres, 2014. "Does economic liberalization promote economic growth in Pakistan? An empirical analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(4), pages 2097-2119, July.
    4. Najia Saqib, 2015. "Review of Literature on Finance-Growth Nexus," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(4), pages 1-11.
    5. Tronzano, Marco, 2011. "“Finance and Growth: A Reassessment of the Empirical Evidence for the Indian Economy” - Finanza e crescita: un riesame dell’evidenza empirica nel caso dell’India," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(3), pages 329-364.
    6. repec:eee:ecanpo:v:55:y:2017:i:c:p:106-123 is not listed on IDEAS
    7. Muhammad, Shahbaz & Mohammad, Mafizur Rahman & Abdul, Farooq, 2012. "Financial Development, International Trade and Economic Growth in Australia:New Evidence from Multivariate Framework Analysis," MPRA Paper 42023, University Library of Munich, Germany, revised 17 Oct 2012.

    More about this item

    Keywords

    Financial management; Trade; Economic growth; India;

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