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Financial development and economic growth nexus: a time-series evidence from India

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  • Tarlok Singh

Abstract

This study examines the relationship between financial development and economic growth in India for the period 1951-52 to 1995-96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969). The Johansen (1991) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980), and the Toda and Yamamoto (1995) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.

Suggested Citation

  • Tarlok Singh, 2008. "Financial development and economic growth nexus: a time-series evidence from India," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1615-1627.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:12:p:1615-1627
    DOI: 10.1080/00036840600892886
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    Cited by:

    1. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Smyth, Russell, 2016. "Oil curse and finance–growth nexus in Malaysia: The role of investment," Energy Economics, Elsevier, vol. 57(C), pages 154-165.
    2. Tanzeem HASNAT & Shahid ASHRAF & Umer J. BANDAY, 2016. "Growth-finance nexus: Empirical evidence from India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 319-330, Autumn.
    3. Fukuda, Takashi & Dahalan, Jauhari, 2011. "Finance-Growth-Crisis Nexus in India: Evidence from Cointegration and Causality Assessment," MPRA Paper 39467, University Library of Munich, Germany.
    4. Md Nain & Bandi Kamaiah, 2014. "Financial development and economic growth in India: some evidence from non-linear causality analysis," Economic Change and Restructuring, Springer, vol. 47(4), pages 299-319, November.
    5. Phouphet Kyophilavong & Gazi Salah Uddin & Muhammad Shahbaz, 2016. "The Nexus between Financial Development and Economic Growth in Lao PDR," Global Business Review, International Management Institute, vol. 17(2), pages 303-317, April.
    6. Edward E GHARTEY, 2015. "Causal Relationship Between Financial Development And Economic Growth In South Africa," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 125-142.
    7. Phouphet KYOPHILAVONG & Gazi Salah Uddin & Muhammad Shahbaz, 2014. "The Nexus Between Financial Development and Economic Growth in Laos," Working Papers 2014-447, Department of Research, Ipag Business School.
    8. Tanzeem HASNAT & Shahid ASHRAF & Umer J. BANDAY, 2016. "Growth-finance nexus: Empirical evidence from India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 319-330, Autumn.
    9. repec:hur:ijarbs:v:7:y:2017:i:10:p:457-466 is not listed on IDEAS
    10. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2014. "Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia," Economic Modelling, Elsevier, vol. 43(C), pages 267-278.
    11. Akinci, Gönül Yüce & Akinci, Merter & Yilmaz, Ömer, 2014. "Financial Development-Economic Growth Nexus : A Panel Data Analysis Upon Oecd Countries," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(1), pages 33-50, June.
    12. repec:spr:fininn:v:3:y:2017:i:1:d:10.1186_s40854-017-0070-0 is not listed on IDEAS
    13. Fukuda, Takashi & Dahalan, Jauhari, 2011. "“Finance-Growth-Crisis Nexus in India: Evidence from Cointegration and Causality Assessment” - L’interazione finanza-crescita-crisi in India: evidenze da una analisi di cointegrazione e causalità," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(3), pages 297-328.
    14. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.
    15. repec:gam:jecomi:v:5:y:2017:i:2:p:11-:d:95100 is not listed on IDEAS

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