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Finance-Growth-Crisis Nexus in India: Evidence from Cointegration and Causality Assessment

  • Fukuda, Takashi
  • Dahalan, Jauhari
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    This paper attempts to explore a new dimension of India’s ‘finance-growth-crisis’ nexus. For this end, the summary indicators of financial development, financial crisis and financial repression are created through the principal component approach, and we perform the cointegration and Granger causality analysis employing the methods of vector error correction model (VECM) and autoregressive distributed lag (ARDL). The element of structural break is also taken into assessment while specifying the break date through the Bai and Perron (1998; 2003) test. The key findings are: (1) India’s finance-growth nexus is bilateral but exhibits stronger evidence on the causality of output→finance; and (2) economic growth, financial development and financial repression have significant long-run impacts on financial crisis.

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    File URL: http://mpra.ub.uni-muenchen.de/39467/1/MPRA_paper_39467.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39467.

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    Date of creation: Aug 2011
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    Publication status: Published in Economia Internazionale / International Economics 3.64(2011): pp. 297-328
    Handle: RePEc:pra:mprapa:39467
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    22. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    23. Clive Bell & Peter L. Rousseau, 2000. "Post-Independence India: A Case of Finance-Led Industrialization?," Vanderbilt University Department of Economics Working Papers 0019, Vanderbilt University Department of Economics.
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