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  • Financial Development and Economic Growth Nexus: A Time Series Evidence from India

    Author(s)
    Singh, Tarlok
    Griffith University Author(s)
    Singh, Tarlok
    Year published
    2008
    Metadata
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    Abstract
    This study examines the relationship between financial development and economic growth in India for the period 1951-52 to 1995-96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969). The Johansen (1991) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980), and the Toda and Yamamoto ...
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    This study examines the relationship between financial development and economic growth in India for the period 1951-52 to 1995-96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969). The Johansen (1991) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980), and the Toda and Yamamoto (1995) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.
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    Journal Title
    Applied Economics
    Volume
    40
    Issue
    12
    DOI
    https://doi.org/10.1080/00036840600892886
    Subject
    Applied economics
    Econometrics
    Banking, finance and investment
    Publication URI
    http://hdl.handle.net/10072/22345
    Collection
    • Journal articles

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