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Analyzing the Dynamic Relationship between Physical Infrastructure, Financial Development and Economic Growth in India

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  • Ranjan Kumar Mohanty
  • N. R. Bhanumurthy

Abstract

The paper investigates dynamic relationship between physical infrastructure, financial development and economic growth in the case of India, using an Autoregressive Distributed Lag (ARDL) and Toda-Yamamoto (T-Y) causality approach for the period 1980 to 2016. Physical infrastructure index and financial development index are constructed using Principal Component Analysis method. Empirical results suggest that physical infrastructure has a positive effect on economic growth both in the long-run and short-run, whereas financial development, though significant, has a weak impact on economic growth. The causality test supports a bi-directional causal relationship between infrastructure development and economic growth, while it finds a unidirectional causation running from economic growth to financial development. It also finds that gross investment and employment have a positive, and inflation has an adverse effect on economic growth. As India is aiming for higher growth for a sustained period, our results suggest that there is a need for Government intervention in expanding the physical infrastructure and this, in turn, could lead to the growth of the financial sector in the country.

Suggested Citation

  • Ranjan Kumar Mohanty & N. R. Bhanumurthy, 2019. "Analyzing the Dynamic Relationship between Physical Infrastructure, Financial Development and Economic Growth in India," Working Papers id:12967, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12967
    Note: Institutional Papers
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    Cited by:

    1. Lu, Haiyan & Zhao, Pengjun & Hu, Haoyu & Zeng, Liangen & Wu, Kai Sheng & Lv, Di, 2022. "Transport infrastructure and urban-rural income disparity: A municipal-level analysis in China," Journal of Transport Geography, Elsevier, vol. 99(C).
    2. Hung, Ngo Thai, 2023. "Green investment, financial development, digitalization and economic sustainability in Vietnam: Evidence from a quantile-on-quantile regression and wavelet coherence," Technological Forecasting and Social Change, Elsevier, vol. 186(PB).
    3. Faroque Ahmed & Md. Jamal Hossain & Mohammad Tareque, 2020. "Investigating the Roles of Physical Infrastructure, Financial Development and Human Capital on Economic Growth in Bangladesh," Journal of Infrastructure Development, India Development Foundation, vol. 12(2), pages 154-175, December.
    4. Tingting Yu & Ah Rong & Feilong Hao, 2022. "Avoiding the middle‐income trap: The spatial–temporal effects of human capital on regional economic growth in Northeast China," Growth and Change, Wiley Blackwell, vol. 53(2), pages 536-558, June.
    5. Ila Patnaik & Shalini Mittal & Radhika Pandey, 2019. "Examining the Trade-Off Between Price and Financial Stability in India," Working Papers id:12979, eSocialSciences.
    6. Datta, Pratik, 2018. "Value Destruction and Wealth Transfer under the Insolvency and Bankruptcy Code, 2016," Working Papers 18/247, National Institute of Public Finance and Policy.
    7. Chengshuang Sun & Shijie Li & Qianmai Luo & Jinyu Zhao & Zhenqiang Qi, 2023. "Research on the Efficiency of Urban Infrastructure Investment under the Constraint of Carbon Emissions, Taking Provincial Capitals in China as an Example," Sustainability, MDPI, vol. 15(12), pages 1-21, June.
    8. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    9. Ignas Lukosevicius, 2020. "European Union Transport Infrastructure: Roads and Railways Subsectors Case," Eurasian Journal of Business and Management, Eurasian Publications, vol. 8(4), pages 305-318.

    More about this item

    Keywords

    eSS; financial sector; Infrastructure Index; Financial Development Index; Economic Growth; ARDL Approach; India;
    All these keywords.

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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