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Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models

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  • Kamat, Manoj
  • Kamat, Manasvi

Abstract

Using contemporary models this paper explores the time-series properties of financial infrastructure and economic growth indicators to investigate the nexus between developments in financial intermediation with the economic growth for India over the 1971-2004 periods. Both over short-run and the long-run perspective the paper seeks to answer; whether the financial infrastructure variables are complementary or a substitute for economic performance? and in what way economic growth is affected by the financial infrastructural development indicators? We find evidence in favor of a short run “financial infrastructure led economic growth”. Finance is found to be a leading sector only in the short-term link in Granger causality tests with stationary variables. The study provides robust empirical evidence in favor of supply leading hypothesis for the Indian economy.

Suggested Citation

  • Kamat, Manoj & Kamat, Manasvi, 2007. "Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models," MPRA Paper 6154, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6154
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    References listed on IDEAS

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    Cited by:

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    2. Bilge Kagan Ozdemir, 2009. "Banking Sector Stability During The Process Of Euro Adoption," Anadolu University Journal of Social Sciences, Anadolu University, vol. 9(1), pages 123-1236, June.
    3. Madhu Sehrawat & A. K. Giri, 2017. "Financial Structure, Interest Rate, Trade Openness and Growth: Time Series Analysis of Indian Economy," Global Business Review, International Management Institute, vol. 18(5), pages 1278-1290, October.
    4. Madhu Sehrawat & A.K. Giri, 2017. "A Sectoral Analysis of the Role of Stock Market Development on Economic Growth: Empirical Evidence from Indian Economy," Global Business Review, International Management Institute, vol. 18(4), pages 911-923, August.

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    More about this item

    Keywords

    Finance; Infrastructure; Development; Economic Growth; Lag-lead; Granger Causality; Cointegration; VAR; VECM; India;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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