Kamat, Manoj and Kamat, Manasvi (2007): Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models.
Download (279Kb) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models|
|Keywords:||Finance, Infrastructure, Development, Economic Growth, Lag-lead, Granger Causality, Cointegration, VAR, VECM, India|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Manoj Kamat|
|Date Deposited:||07. Dec 2007 14:34|
|Last Modified:||13. Feb 2013 11:19|
Agarwal, R. N. 1996. Financial Liberalisation in India: Banking system and Stock Markets. Delhi: D.K. Publishers. Agarwal, R. N. 1997. “Inflow of Foreign Portfolio Investment in Developing Countries: A study of Determinants and Macroeconomic Impact”. The Indian Economic Review, Vol.32, No.2, PP. 217-229. Arestis, P. and Demetriades, P. 1997. “Financial Development and Economic Growth: Assessing the Evidence”. The Economic Journal, 107(May): 783-799. Bencivenga, Valerie et Smith, Bruce, 1991. “Financial Intermediation and Endogenous Growth”. Review of Economic Studies, 58:195-209. Bhole, L. M. 1999. Financial Institutions and Markets: Structure, Growth and Innovations. 3rd Edition. New Delhi: Tata McGraw-Hill Publishing Company Limited. Cameron, R. 1967. Banking in Early Stages of Industrialization. New York: Oxford University Press. Chandavarkar, A. 1992. “Of Finance and Development: Neglected and Unsettled Questions”. World Development, 20(Jan.): 133-142. Demetriades, P. and Hussein, K. A. 1996. “Does Financial Development Cause Economic Growth? Time-series Evidence from 16 Countries”. Journal of Development Economics, 51: 387-411. Demetriades, P. and Luintel, K. 1996. “Financial Development, Economic Growth and Banking Sector Controls: Evidence from India”. The Economic Journal, 106: 359-374. Demirguc-Kunt A. and Levine, R. 1996. “Stock Markets, Corporate Finance and Economic Growth: An Overview”. World Bank Economic Review, 10. Engle, R. and Granger, C. W. J. 1987. “Cointegration and Error-correction: Representation, Estimation and Testing”. Econometrica (55): 251-276. Fry, M. J. 1997. “In Defense of Financial Liberalization”. The Economic Journal, 107(May): 754-770. Goldsmith, R. 1969. “Financial structure and Development”. New Haven, CT: Yale University Press. Granger, C. W. J. 1969. “Investigating Causal Relations by Econometric Methods and Cross-Spectral Methods”. Econometrica, 37, 424-438. Granger, C. W. J. 1980. “Testing for Causality: A Personal Viewpoint”. Journal of Economic Dynamics and Control, 2,329-352. Granger, C. W. J. 1981. “Some Properties of Time Series Data and their Use in Econometric Model Specification”. Journal of Econometrics, 16, 121-130. Granger, C. W. J. 1988. “Granger Causality, Cointegration, and Control”. Journal of Economic Dynamics and Control, 12: 551-59. Greenwood, J. and Smith, B. 1997. “Financial Markets in Development, and the Development of Financial Markets”. Journal of Economic Dynamic and Control, 21: 145-181. Gujarati, D. 1995. Basic Econometrics. New York: McGraw -Hill. Gupta, K.L. (1984), “Finance and Economic Growth in Developing Countries”. London: Croom Helm Gurley, J. G. and Shaw, E. S. 1955. “Financial Aspects of Economic Development”. American Economic Review, 45(Sept): 515-538. Johansen, S. 1988. “Statistical Analysis of Co-integrating Vectors”. Journal of Economic Dynamic and Control, 12: 231-254. Johansen, S. and Juselius, K. 1990. “Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money”. Oxford Bulletin of Economics and Statistics, 52: 169-210. Johansen, S. and Juselius, K. 1992. Some Structural Hypotheses in a Multivariate Cointegration Analysis of Purchasing Power Parity and the Uncovered Interest Parity for UK. Denmark: University of Copenhagen. Jung, W. S. 1986. “Financial Development and Economic Growth”. Economic Development and Cultural Change, 34: 336-346. Khan, M. S. and Senhadji, A.S. 2000. “Threshold Effects in the Relationship Between Inflation and Growth”. IMF Working Paper 00/110. Washington: International Monetary Fund. King, R. and Levine, R. 1993. “Financial Intermediation and Economic Development” in Financial Intermediation in the Construction of Europe, ed. by Colin Mayer and Xavier Vives, PP. 156-89. King, R. and Levine, R. 1993b. “Finance, Entrepreneurship and Growth: Theory and Growth”. Journal of Monetary Economics, 32(Dec): 513-542. Kul B. L. and Khan, M. 1999. “A Quantitative Reassessment of the Finance growth Nexus: Evidence from a Multivariate VAR”. Journal of Development Economics Levine, R. 1997. “Financial Development and Economic Growth: Views and Agenda”. Journal of Economic Literature, 25(June): 688-726. Lucas, R. E. Jr. 1988. “On the Mechanics of Economic Development”. Journal of Monetary Economics, 22(July): 3-42. Luintel, K.B. and Khan, M. 1999. “A Quantitative Reassessment of the Finance-Growth Nexus: Evidence from a Multivariate VAR”. Journal of Development Economics, 60, 381-405. McKinnon, R. 1973. Money and Capital in Economic Development. Washington: Brookings Institution. MacKinnon, J. G. 1991. “Critical Values for Cointegration Tests.” In Long Run Equilibrium Relationships: Readings in Cointegration, edited by R. F. Engel and C. W. Granger. Oxford: Oxford University Press. Murinde, V. et F. Eng 1994, “Financial Development and Economic Growth in Singapore: Demand-following of Supply-leading ?” , Applied Financial Economics, 4, 391-404 Newlyn, W.T. 1977. “The Financing of Economic Development” , Clarendon press, Oxford. Niles, H. 1994. “Financial Development & Economic Growth: A Survey of the Literature”. International Journal of Development Banking,January. Osterwald-Lenum, M., 1992. “A Note with Quintiles of Asymptotic Distribution of the ML Co-integration Rank Statistic”. Oxford Bulletin of Economics and Statistics, 54: 461-472. Pagano, M. 1993. “Financial Markets and Growth: An Overview”. European Economic Review, 37(Apr): 613-622. Patrick, H. 1966. “Financial Development and Economic Growth in Underdeveloped Countries”. Economic Development and Cultural Change, 14: 174-189. Phillips, P.C.B. & Perron, P. 1988. “Testing for a Unit Root in Time Series Regression,” Biometrika, 75, 335-346. Pindyck. R. S., and Rubinfeld, D. L. 1998. “Econometric Models and Economic Forecasts,” 4th Ed. New York: McGraw-Hill. Robinson, J. 1952. “The Rate of Interest and Other Essays”. London: Macmillan. Romer, P. M. 1990. “Endogenous Technological Change”. Journal of Political Economy, 98, S71-S102. Schumpeter, J. A. 1912. “Theorie der Wirtschaftlichen Entwicklung” (The Theory of Economic Development ). Leipzig: Dunker& Humblot, Translated by Redvers Opie, Cambridge, MA: Harvard University Press, 1934. Shaw, E. 1973. Financial Deepening in Economic Development. New York: Oxford University Press. Sims, C. A. 1972. “Money Income and Causality” American Economic Review, (62): 540-552. World Bank 1989. World Development Report (1989), New York: Oxford University Press for the World Bank. World Bank 1996. Global Economic Prospects and the Developing Countries. Toda, H. and P.C.B. Phillips 1993. “Vector Auto-regressions and Causality” Econometrica, 61:1367-1393.