IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/8763.html
   My bibliography  Save this paper

A model of growth and finance: FIML estimates for India

Author

Listed:
  • Rao, B. Bhaskara
  • Tamazian, Artur

Abstract

Many empirical works addressed the nature of the relationship between economic growth and financial developments. Although these studies concede that they are interdependent, they have used single equations methods for estimation. In particular in the country specific studies the Granger causality tests are applied to equations estimated with the single equations methods to determine whether financial developments cause growth or vice versa. This paper uses the full information maximum likelihood method to estimate a two equations model of growth and finance for India. We also argue that in virtually all these empirical works the specification of the output equation is unsatisfactory. Our results with the Indian data show that there is no evidence to support the view that finance follows where enterprise goes. Furthermore, financial developments have a small but significant permanent growth effect in India.

Suggested Citation

  • Rao, B. Bhaskara & Tamazian, Artur, 2008. "A model of growth and finance: FIML estimates for India," MPRA Paper 8763, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8763
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/8763/1/MPRA_paper_8763.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
    3. B. Bhaskara Rao & Rup Singh & Saten Kumar, 2010. "Do we need time series econometrics?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(7), pages 695-697.
    4. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    5. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    6. Abhijit V. Banerjee & Shawn Cole & Esther Duflo, 2004. "Banking Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 277-332.
    7. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    8. Arestis, Philip & Basu, Santonu, 2004. "Financial globalisation and regulation," Research in International Business and Finance, Elsevier, vol. 18(2), pages 129-140, June.
    9. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    10. Luintel, Kul B. & Khan, Mosahid & Arestis, Philip & Theodoridis, Konstantinos, 2008. "Financial structure and economic growth," Journal of Development Economics, Elsevier, vol. 86(1), pages 181-200, April.
    11. Ang, James B., 2008. "What are the mechanisms linking financial development and economic growth in Malaysia," Economic Modelling, Elsevier, vol. 25(1), pages 38-53, January.
    12. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
    13. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
    14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saten Kumar & Gail Pacheco, 2010. "What Determines the Long run Growth in Kenya?," EERI Research Paper Series EERI_RP_2010_16, Economics and Econometrics Research Institute (EERI), Brussels.
    2. Kumar, Saten & Pacheco, Gail, 2012. "What determines the long run growth rate in Kenya?," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 705-718.

    More about this item

    Keywords

    Steady State Growth Rate; Financial Development; Solow Model; Simultaneous Equation Model and FIML Estimates;

    JEL classification:

    • 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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8763. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.