Financial development and economic growth in India: some evidence from non-linear causality analysis

Md Nain () and Bandi Kamaiah ()

Economic Change and Restructuring, 2014, vol. 47, issue 4, 299-319

Abstract: In the light of the recent observation that the relationship between financial development and economic growth is one of non-linear and limitations of granger test, this paper re-examined relationship in the framework of non-linear Granger causality employing (Diks and Panchenko in Stud Nonlinear Dyn Econ 9(2), 2006 ) test. The limitation of non-stationarity of earlier study is also addressed using the Toda and Yamamoto (J Econ 66:225–250, 1995 ) test. The present study attempts to undertake this exercise, as causal inference is sensitive to the twin limitations of non-stationarity and non-linearity. We used principal component analysis to construct index of financial development comprising alternative measures of financial development. The analysis has been carried out for the period 1990–2010. The results of Toda–Yamamoto and Diks–Panchenko tests reveal that financial development and economic growth bear no causal relationship, a finding contrary to the findings of several of the existing studies in the Grangerian framework. Copyright Springer Science+Business Media New York 2014

Keywords: Financial development; Economic growth; Non-linear; Granger causality; India; E44; O16; O53 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s10644-014-9151-5

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