Globalization, role of institutions and economic performance in Indian economy

Purpose - Using time series data for the period 1982-2016, this study aims to explore the effect of globalization, institutional quality on economic performance for Indian economy by endogenizing financial development. Design/methodology/approach - The stationarity properties of the variables are tested by Saikkonen and Lütkepohl unit root test, and the co-integration test proposed byBayer–Hanck (2013)is used to check the long- and short-run relationship among the variables. The robustness is established by autoregressive distributed lag approach (ARDL), and the Granger causality test is used to assess the causal relationship among the variables. Findings - The empirical findings indicate the existence of the co-integrating relationship among the variables, and the ARDL estimates reveal that both globalization and institutional quality act as important key drivers for India’s economic performance. However, the institutional quality does not affect the short-run economic growth. Research limitations/implications - The study finds that institutional quality and globalization index are crucial to accelerate economic performance. Therefore, policy efforts should be focused on the improvement of these indicators by offering protection of property rights, reduction in government corruption, reducing political instability, price stability and stable macroeconomic environment. This study recommends that policy should be geared toward development of financial sector, promotion of financial integration, which will create the environment for the efficient allocation of credit. Originality/value - This study provides empirical support for the proposition that both globalization and institutional quality matter for India’s emerging economic growth by taking account of the structural break.