Analyzing the Dynamic Relationship between Physical Infrastructure, Financial Development and Economic Growth in India

Ranjan Kumar Mohanty () and N R Bhanumurthy
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Ranjan Kumar Mohanty: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: The paper investigates dynamic relationship between physical infrastructure, financial development and economic growth in the case of India, using an Autoregressive Distributed Lag (ARDL) and Toda-Yamamoto (T-Y) causality approach for the period 1980 to 2016. Physical infrastructure index and financial development index are con-structed using Principal Component Analysis method. Empirical results suggest that physical infrastructure has a positive effect on economic growth both in the long-run and short-run, whereas financial development, though significant, has a weak impact on eco-nomic growth. The causality test supports a bi-directional causal relationship between infrastructure development and economic growth, while it finds a unidirectional causa-tion running from economic growth to financial development. It also finds that gross in-vestment and employment have a positive, and inflation has an adverse effect on eco-nomic growth. As India is aiming for higher growth for a sustained period, our results suggest that there is a need for Government intervention in expanding the physical infra-structure and this, in turn, could lead to the growth of the financial sector in the country.

Keywords: Infrastructure Index; Financial Development Index; Economic Growth; ARDL Approach; India (search for similar items in EconPapers)
JEL-codes: C32 C43 H40 O40 (search for similar items in EconPapers)
Pages: 27
Date: 2018-12
New Economics Papers: this item is included in nep-fdg
Note: Working Paper 245, 2018
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Analyzing the Dynamic Relationships between Physical Infrastructure, Financial Development and Economic Growth in India (2019)
Working Paper: Analyzing the Dynamic Relationship between Physical Infrastructure, Financial Development and Economic Growth in India (2019)
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