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Financial intermediation and economic growth: the post-liberalization Indian experience

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  • Agnirup Sarkar

Abstract

The paper is concerned with the relationship between economic growth and financial intermediation, in particular stock market development, in post-liberalization India. It identifies three possible relationships: (a) the relationship between growth of manufacturing and growth of the stock market; (b) the relationship between growth of the stock market and growth of traditional financial intermediaries like banks; (c) the relationship between the growth of the primary stock market and that of the secondary stock market. These three relationships are empirically tested using Indian data. While the growth of turnover in the stock market is found to be positively correlated with the change in the growth of manufacturing and the growth of sales of new shares is found to positively affect the secondary market, evidence on the relationship between sales of new shares and traditional banking activities is mixed. The primary stock market is found to crowd out bank deposits, but crowd in bank credit.

Suggested Citation

  • Agnirup Sarkar, 2013. "Financial intermediation and economic growth: the post-liberalization Indian experience," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(2), pages 280-294, September.
    • Handle: RePEc:taf:macfem:v:6:y:2013:i:2:p:280-294
    DOI: 10.1080/17520843.2013.766226
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    References listed on IDEAS

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    1. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
    2. Mr. Manmohan S. Kumar & Mr. Robert A Feldman, 1994. "Emerging Equity Markets: Growth, Benefits, and Policy Concerns," IMF Policy Discussion Papers 1994/007, International Monetary Fund.
    3. John Mullin, 1993. "Emerging equity markets in the global economy," Quarterly Review, Federal Reserve Bank of New York, vol. 18(Sum), pages 54-83.
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