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Energy Consumption, Financial Development and Economic Growth in India: New Evidence from a Nonlinear and Asymmetric Analysis

Shahbaz, Muhammad and HOANG, Thi Hong Van and Kumar, Mantu and Roubaud, David (2017): Energy Consumption, Financial Development and Economic Growth in India: New Evidence from a Nonlinear and Asymmetric Analysis.

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Abstract

This paper investigates the asymmetric relationship between energy consumption and economic growth by incorporating financial development, capital and labour into a production function covering the Indian economy from 1960Q1–2015Q4. The nonlinear autoregressive distributed lag bounds testing approach is applied to examine the asymmetric cointegration between the variables. An asymmetric causality test is also employed to examine the causal association between the considered variables. The results indicate cointegration between the variables in the presence of asymmetries. The asymmetric causality results show that only negative shocks in energy consumption have impacts on economic growth. In the same vein, only negative shocks in financial development have impacts on economic growth. By contrast, symmetrically, capital formation causes economic growth. Finally, over the study period, a neutral effect exists between the labour force and economic growth in India. The implications of these results for growth policies in India are also discussed.

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