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Stock Market Development and Economic Growth in India: An Empirical Analysis

Author

Listed:
  • Srinivasan Palamalai

    (Assistant Professor, Xavier Institute of Management & Entrepreneurship, Electronics City, Bangalore, Karnataka, India)

  • Karthigai Prakasam

    (Assistant Professor, Department of Commerce, Christ University, Bangalore, Karnataka, India)

Abstract

The link between stock market development and economic activity has always been the subject of considerable debate in the field of economics and it raises empirical question whether stock market development influences economic activity or whether it is a consequence of increased economic activity.This study attempts to investigate the direction of causality between stock market development and economic growth in the Indian context. Using the cointegration and causality tests for the period June 1991 to June 2013, the study confirms a well defined long-run equilibrium relationship between the stock market development indicators and economic growth in India. The empirical results show bidirectional causality between market capitalisation and economic growth and unidirectional causality from turnover ratio to economic growth in the long-run and short-run.By and large, it can be inferred that the stock market development indicators viz. market capitalisation and turnover ratio have a positive influence on economic growth in India.

Suggested Citation

  • Srinivasan Palamalai & Karthigai Prakasam, 2014. "Stock Market Development and Economic Growth in India: An Empirical Analysis," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(3), pages 30-46, July.
    • Handle: RePEc:rbs:ijfbss:v:3:y:2014:i:3:p:30-46
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    References listed on IDEAS

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