The role of financial development in economic growth: empirical evidence from Indian states

2015 ◽  
Vol 10 (4) ◽  
pp. 765-780 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Ordinary Least Squares ◽  
Annual Data ◽  
Indian States ◽  
Content Type ◽  
Long Run ◽  
Panel Granger Causality ◽  
Integration Test

Purpose – The purpose of this paper is to examine the relationship between financial development and economic growth in Indian states using annual data from 1993 to 2012. Design/methodology/approach – The stationarity properties are checked by Levin-Lin-Chu and Im-Pesaran-Shin panel unit root tests. The study employed the Pedroni’s panel co-integration test to examine the existence of long-run relationship and the coefficients of co-integration are examined by fully modified ordinary least squares. The short term and long-run causality is checked by panel granger causality. Findings – The co-integration test confirms a long-run relationship between financial development and economic growth for Indian states. The results support the supply leading hypothesis and highlight the importance of financial development in economic growth in Indian states. The findings also indicate that bank-centric financial sector of India has the potential of economic growth through credit transmission. Research limitations/implications – The present study recommends for appropriate reforms in financial market to attain economic growth in India. The findings will be useful for India’s policymakers in order to maintain the parallel expansion of financial development and economic growth. Originality/value – Till date, there is no study that includes all 28 states in analyzing the role of financial development in economic growth for Indian economy by applying latest econometric techniques. Further, the study uses gross domestic state product instead of net domestic state product as proxy for economic growth because of the presence of different depreciation rates.

The impact of financial development on economic growth

2016 ◽  
Vol 11 (4) ◽  
pp. 569-583 ◽  
Author(s):  
Madhu Sehrawat ◽  
A.K. Giri
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Structural Breaks ◽  
Regional Cooperation ◽  
Ordinary Least Squares ◽  
Annual Data ◽  
Content Type ◽  
Long Run ◽  
Integration Test ◽  
The Impact

Purpose The purpose of this paper is to investigate the possible co-integration and the direction of causality between financial development and economic growth in South-Asian Association for Regional Cooperation (SAARC) countries using annual data from 1994 to 2013. Design/methodology/approach The Carrion-i-Silvestre et al. (2005) stationarity test with structural breaks is used to check the stationarity. The Westerlund (2006) panel co-integration test is employed to examine the long-run relationship among the variables. To carry out tests on the co-integrating vectors, fully modified ordinary least squares (FMOLS) and PDOLS techniques are used and panel Granger causality test is used to examine the direction of the causality. Findings The Westerlund (2006) panel co-integration test confirms the existence of the long-run relationship between financial development and economic growth for SAARC countries. The coefficients of FMOLS and DOLS indicate that index of financial development (IFD) and trade openness supports economic growth in SAARC region. In the short-run, there is unidirectional causality running from IFD to economic growth. Research limitations/implications In the view of these findings it is recommended that countries in the region should adopt policies geared toward financial sector development to attain high economic growth. Originality/value To the best of the author’s knowledge, no studies have looked into SAARC countries to study the relationship between financial development and economic growth, this study is the first of its kind.

Financial development and economic growth: empirical evidence from India

2015 ◽  
Vol 32 (3) ◽  
pp. 340-356 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Positive Impact ◽  
Annual Data ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
Sustainable Economic Growth

Purpose – The purpose of this paper is to examine the relationship between financial development and economic growth in India using annual data from 1982 to 2012. Design/methodology/approach – The stationarity properties are checked by ADF, DF-GLS, KPSS and Ng–Perron unit root tests. The long- and short-run dynamics are examined by using the autoregressive distributed lag (ARDL) approach to co-integration. Findings – The co-integration test confirms a long-run relationship in financial development and economic growth for India. The analysis of ARDL test results reveals that both bank-based and market-based indicators of financial development have a positive impact on economic growth in India. Hence, the results support the supply-leading hypothesis and highlight the importance of financial development in economic growth. The findings also indicate that the Indian bank-centric financial sector has the potential for economic growth through credit transmission. Research limitations/implications – The present study recommends appropriate reforms in financial markets to attain sustainable economic growth. The findings are useful for policy-makers who want to maintain a parallel expansion of financial development and growth. Originality/value – To date, there are hardly any studies that use both market-based and bank-based indicators as proxies of financial development and analyze their role in economic growth in India. So, the contribution of the paper is to fill this gap in literature.

An empirical relationship between financial development indicators and human capital in some selected Asian countries

2017 ◽  
Vol 44 (3) ◽  
pp. 337-349 ◽  
Author(s):  
Madhu Sehrawat ◽  
A.K. Giri
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Financial Development ◽  
Ordinary Least Squares ◽  
Development Economic ◽  
Asian Countries ◽  
Content Type ◽  
Development Indicators ◽  
Long Run ◽  
Panel Granger Causality

Purpose The purpose of this paper is to investigate the relationship between financial development indicators and human capital for Asian countries using the annual data from 1984-2013. Design/methodology/approach The stationarity of the variables are checked by Levin-Lin-Chu, Im-Pesaran-Shin, Fisher-type augmented Dickey-Fuller and Philips-Perron panel unit-root tests. The Pedroni’s and Kao’s panel co-integration approaches are employed to examine the long-run relationship among the variables. To estimate the coefficients of co-integrating vectors, both panel dynamic ordinary least squares (PDOLS) and fully modified ordinary least squares (FMOLS) techniques are used. The short-term and long-run causality is examined by panel granger causality. Findings The Pedroni’s and Kao’s co-integration approaches support the existence of the long-run relationship among the indicators of financial development, economic growth and human capital. The PDOLS and FMOLS estimators revealed that both financial development indicators and economic growth variable act as an important driver for the increase in human capital. The results of panel granger causality indicate that causality runs from indicators of financial development, economic growth and public spending on education to human capital. Originality/value There is hardly any study that examine the impact of financial development indicators and economic growth on human capital in Asian economies, therefore the present study fill the research gap in the literature.

scholarly journals The drivers of economic growth in China and India: globalization or financial development?

2017 ◽  
Vol 16 (1) ◽  
pp. 54-84 ◽  
Author(s):  
Magda Kandil ◽  
Muhammad Shahbaz ◽  
Mantu Kumar Mahalik ◽  
Duc Khuong Nguyen
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Emerging Market ◽  
Annual Data ◽  
Test Results ◽  
Causality Test ◽  
Content Type ◽  
China And India ◽  
Integration Test ◽  
The Impact

Purpose Using annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies. Design/methodology/approach In the long run, co-integration test results indicate that financial development increases economic growth in China and India. Findings The results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China, as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India. Originality/value Causality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.

Financial development, FDI and economic growth: evidence from Sudan

2018 ◽  
Vol 45 (8) ◽  
pp. 1236-1249 ◽  
Author(s):  
Abdalla Sirag ◽  
Samira SidAhmed ◽  
Hamisu Sadi Ali
Keyword(s):  
Economic Growth ◽  
Least Squares ◽  
Financial Development ◽  
Unit Root ◽  
Structural Break ◽  
Ordinary Least Squares ◽  
Series Data ◽  
Content Type ◽  
Long Run ◽  
Cointegration Tests

Purpose The effect of foreign direct investment (FDI) on economic growth is widely believed to be contingent on the development of the financial sector. Nevertheless, as the possibility that the effect of financial development on growth being contingent on FDI has been neglected in existing literature, the authors have investigated it in this paper. In general, the purpose of this paper is to examine the effect of financial development and FDI on economic growth in Sudan using annual data from 1970 to 2014. Design/methodology/approach Since most of the macroeconomic variables are subject to unit root problem, the time series data are assessed using unit root and cointegration tests with/without structural break. Moreover, the study uses the fully modified ordinary least squares and the dynamic ordinary least squares techniques to estimate the long-run model. Findings The results of the cointegration tests provide evidence that a long-run relationship exists among variables even after accounting for the structural break. The results show that financial development and FDI are positive and significant in explaining economic growth in Sudan. Financial development is found to be more beneficial to economic growth than FDI. Moreover, the findings reveal that FDI leads to better economic performance through financial development. Interestingly, the findings of the study show that the effect of financial development on economic growth is further enhanced by the inflows of FDI. Research limitations/implications The government should focus on promoting FDI in more productive sectors. In addition, further cooperation with multinational enterprises is needed to increase FDI in the country. Originality/value This is the first paper that empirically examines both the interlinked impact of FDI on growth through financial development and the impact of financial development on economic growth through FDI in Sudan using appropriate econometric methods.

Investigating the interlinkages between infrastructure development, poverty and rural–urban income inequality

2017 ◽  
Vol 34 (4) ◽  
pp. 466-484 ◽  
Author(s):  
Varun Chotia ◽  
N.V.M. Rao
Keyword(s):  
Economic Growth ◽  
Income Inequality ◽  
Poverty Reduction ◽  
Ordinary Least Squares ◽  
Infrastructure Development ◽  
Content Type ◽  
Long Run ◽  
Integration Test ◽  
Urban Income ◽  
The Relationship

Purpose The purpose of this paper is to investigate the relationship between infrastructure development, rural–urban income inequality and poverty for BRICS economies. Design/methodology/approach Pedroni’s panel co-integration test and panel dynamic ordinary least squares (PDOLS) have been used to carry out the analysis. Findings The empirical findings confirm a long-run relationship among infrastructure development, poverty and rural–urban inequality. The PDOLS results suggest that both infrastructure development and economic growth lead to poverty reduction in BRICS. However, rural–urban income inequality aggravates poverty in these nations. The paper advocates for adopting policies aimed at strengthening infrastructure and achieving economic growth to reduce the current levels of poverty prevailing in the BRICS nations. Originality/value Significant limitations exist in the literature in terms of not clearly defining the nature of relationship and interlinkages between infrastructure development, poverty and inequality, with regard to the BRICS nations. The available studies mainly focus on the relationship between infrastructure and growth, with the universal agreement being that these two are positively related. However, it is still not right to assume that economic growth attributable to infrastructure development will, therefore, subsequently lead to a reduction in inequality. This forms the basis for this study, that is, to critically examine the relationship between infrastructure development, inequality and poverty for BRICS nations.

Financial development and income inequality in India: an application of ARDL approach

2015 ◽  
Vol 42 (1) ◽  
pp. 64-81 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Income Inequality ◽  
Financial Development ◽  
Trade Openness ◽  
Development Economic ◽  
Annual Data ◽  
Content Type ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
The Relationship

Purpose – The purpose of this paper is to examine the relationship between financial development and income inequality in India using annual data from 1982-2012. Design/methodology/approach – Stationarity properties of the series are checked by using ADF, DF-GLS, KPSS and Ng- Perron unit root tests. The paper applied the auto regressive distributed lag (ARDL) bound testing approach to co-integration to examine the existence of long run relationship; and error correction mechanism for the short run dynamics. Findings – The co-integration test confirms a long run relationship between financial development and income inequality for India. The ARDL test results suggest that financial development, economic growth, inflation aggravates the income inequality in both long run and short run. However, trade openness reduces the gap between rich and poor in India. Research limitations/implications – The present recommend for appropriate economic and financial reforms focussing on financial inclusion to reduce income inequality in India. Originality/value – Till date, there is hardly any study that makes a clear comparison between market-based indicator and bank based indicator of financial development in India and those examining the relationship between finance and income inequality nexus. Further there is hardly any study to include gini coefficient as a proxy for inequality for India and apply ARDL techniques of co-integration, using the basic principles of GJ hypothesis and provide short run and long run dynamics for India. So the contribution of the paper is to fill these research gaps.

scholarly journals The role of foreign direct investment, financial development, democracy and political (in)stability on economic growth in West Africa

2020 ◽  
Vol 4 (1) ◽  
pp. 27-46
Author(s):  
Hammed Agboola Yusuf ◽  
Waliu Olawale Shittu ◽  
Saad Babatunde Akanbi ◽  
Habiba MohammedBello Umar ◽  
Idris Abdulganiyu Abdulrahman
Keyword(s):  
Economic Growth ◽  
West Africa ◽  
Financial Development ◽  
Political Instability ◽  
West African ◽  
The West ◽  
Content Type ◽  
Long Run ◽  
Short Run

PurposeIn this research, we examine the role of financial development, FDI, democracy and political instability on economic growth in West Africa.Design/methodology/approachThe study uses the dynamic fixed effects technique on the secondary data obtained from 1996 to 2016.FindingsOur empirical findings suggest that even though no significant relationship is established in the short run, the long-run coefficient of FDI is found to be significant and positive; a 1% increase in FDI inflow into the West African sub-region results in a 0.26% increase in economic growth. The coefficient of democracy is significant neither in the short run nor in the long run, but political instability is found to significantly and negatively impact the growth of the countries. Finally, the estimate of financial development–growth nexus follows the supply-leading hypothesis.Research limitations/implicationsThis research affirms the proposition that FDI is a relevant means of technology and knowledge transfers, thus resulting in increasing returns to production as a result of productive spillovers, which drives the growth of the economy. Consequently, an efficient institution – where the rule of law, political stability and economic freedom are top priorities – is a key to accelerate the growth of the West African economy. Similarly, we confirm the validity of the supply-leading hypothesis in West Africa. As such, by deepening the financial system, the growth of the subregion is propelled because an efficient financial system is a basis for sustainable development.Practical implicationThe applicable policies are those that promote growth through FDI, financial development, democracy and political instability. The governments of West African countries are enjoined to promote policies that attract FDI into the subregion and promote financial sector credits so that economic performances may be enhanced. In addition, the governments of West African subregion should fully entrench democratic practices and enhance a stable and sustainable political environment. This will not only restore investor confidence but will also facilitate the inflow of FDI into the West African economy.Originality/valueOur study is the first to jointly examine these important growth determinants, especially in the context of West Africa. This becomes necessary in order to open the eyes of policy makers to the need for entrenched full democracy and to proffer sustainable cures to the frequent unrests in the subregion. The use of Pesaran (2007) technique of unit root is also a deviation from several existing studies. One advantage of this technique over others is that being a second-generation test, it tests variable unit root in the presence of cross-sectional dependence.

Financial development and poverty reduction in India: an empirical investigation

2016 ◽  
Vol 43 (2) ◽  
pp. 106-122 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Financial Development ◽  
Poverty Reduction ◽  
Financial Sector ◽  
Annual Data ◽  
Causality Test ◽  
Content Type ◽  
Financial Sector Development ◽  
Long Run ◽  
Integration Test ◽  
Short Run

Purpose – The purpose of this paper is to examine the relationship between financial sector development and poverty reduction in India using annual data from 1970 to 2012. The paper attempts to answer the critical question: does financial sector development lead to poverty reduction? Design/methodology/approach – Stationarity properties of the series are checked by using Ng-Perron unit root test. The paper uses the Auto Regressive Distributed Lag (ARDL) bound testing approach to co-integration to examine the existence of long-run relationship; error-correction mechanism for the short-run dynamics and Granger non-causality test to test the direction of causality. Findings – The co-integration test confirms a long-run relationship between financial development and poverty reduction for India. The ARDL test results suggest that financial development and economic growth reduces poverty in both long run and short run. The causality test confirms that there is a positive and unidirectional causality running from financial development to poverty reduction. Research limitations/implications – This study implies that poverty in India can be reduced by financial inclusion and financial accessibility to the poor. For a fast growing economy with respect to financial sector development this may have far-reaching implication toward inclusive growth. Originality/value – This paper is the first of its kind to empirically examine the causal relationship between financial sector development and poverty reduction in India using modern econometric techniques.

scholarly journals Migrants’ remittances and economic growth in Egypt: an empirical analysis from 1980 to 2017

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rasha Qutb
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Recipient Country ◽  
Growth Effect ◽  
Annual Data ◽  
Content Type ◽  
Long Run ◽  
Integration Test ◽  
Migrant Remittances ◽  
The Impact

Purpose Migrants’ remittances to Egypt have increased considerably in both size and importance over the past 40 years. This increase has made Egypt one of the top remittance recipients in the world and the leading recipient country in the Middle East. As migrant remittances are one of Egypt's main sources of foreign capital, this study aims to identify the impact of these remittances on economic growth. Design/methodology/approach The study collects annual data on migrant remittances sent to Egypt during the period 1980–2017. The study uses the Augmented Dickey–Fuller test and Johnsen's Co-integration test to establish long-run relationships between variables. Then, a vector error correction model (VECM) is used to combine long-run and short-run dynamics, and a Granger causality test is performed. Finally, diagnostic tests of the VECM are conducted. Findings Results reveal that migrants’ remittances to Egypt are countercyclical in the sense that they have a long-term negative impact on economic growth. These results are determined by the Granger causality between migrants' remittances, inflation rate and imports. Practical implications The study can help policymakers to develop appropriate policies to turn migrants' remittances into a reliable source of capital that could result in a stable economic growth. Originality/value Although various empirical studies have examined the growth effect of remittances, most of them are based on cross-country data. This study contributes to the field by attempting to close a gap in the literature by empirically analyzing the impact of remittances on a single country over a long period.

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