Does Financial Growth lead Economic Performance in India? Causality-Cointegration using Unrestricted Vector Error Correction Models

Manoj Kamat () and Manasvi Kamat ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Finance; Infrastructure; Development; Economic Growth; Lag-lead; Granger Causality; Cointegration; VAR; VECM; India (search for similar items in EconPapers)
JEL-codes: C5 E50 G2 O4 (search for similar items in EconPapers)
Date: 2007-11-11
New Economics Papers: this item is included in nep-cwa and nep-mac
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Citations: View citations in EconPapers (4)

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