A model of growth and finance: FIML estimates for India

B. Rao and Artur Tamazian

MPRA Paper from University Library of Munich, Germany

Abstract: Many empirical works addressed the nature of the relationship between economic growth and financial developments. Although these studies concede that they are interdependent, they have used single equations methods for estimation. In particular in the country specific studies the Granger causality tests are applied to equations estimated with the single equations methods to determine whether financial developments cause growth or vice versa. This paper uses the full information maximum likelihood method to estimate a two equations model of growth and finance for India. We also argue that in virtually all these empirical works the specification of the output equation is unsatisfactory. Our results with the Indian data show that there is no evidence to support the view that finance follows where enterprise goes. Furthermore, financial developments have a small but significant permanent growth effect in India.

Keywords: Steady State Growth Rate; Financial Development; Solow Model; Simultaneous Equation Model and FIML Estimates (search for similar items in EconPapers)
JEL-codes: C32 E44 O11 O16 (search for similar items in EconPapers)
Date: 2008-05-14
New Economics Papers: this item is included in nep-cwa, nep-dev and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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