The Dynamics of Cointegration Between Economic Growth and Financial Development in Emerging Asian Economy: Evidence from India

2021 ◽  
pp. 097226292110118
Author(s):  
Naliniprava Tripathy ◽  
Shekhar Mishra
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Consumer Price Index ◽  
Control Variable ◽  
Weighted Average ◽  
Ordinary Least Squares ◽  
Cumulative Sum ◽  
Ardl Bounds Test ◽  
Long Run ◽  
Bounds Test

The present article examines the relationship between economic growth and financial development in the context of Indian economy over the period of 15 years from June 2003 to February 2018. The study employs cointegration test, involving Johansen Juselius Cointegration and autoregressive distributed lag (ARDL) Bounds test approach to ascertain the long-run relationship between financial development and economic growth. The study further employs fully modified ordinary least squares—OLS—(FMOLS), dynamic OLS (DOLS) and canonical cointegration regression (CCR) models to ascertain the sensitivity and robustness of the estimates derived from ARDL Bounds test approach. The stability of the models employed in the study are further confirmed by rolling window analysis and the cumulative sum (CUSUM) and cumulative sum of squares (CUSUMSQ) tests. The outcome of the article reports the existence of long-run equilibrium relationship between economic growth represented by Index of Industrial Production and Financial Development represented by the Bombay Stock Exchange (BSE) Index and BSE Volume of Trade. The article also involves consumer price index as proxy for inflation, exchange rate, ratio of export to import and weighted average call rate as control variable to also examine their impact on the Indian economic growth. The study confirms the existence of Supply Leading Hypothesis, that is, existence of unidirectional causality running from financial development to economic growth in the Indian economic scenario. The outcome of the article indicates the positive and significant influence of development of financial markets represented by stock market on the economic growth.

scholarly journals The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia

Economies ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 174
Author(s):  
Khalid Eltayeb Elfaki ◽  
Rossanto Dwi Handoyo ◽  
Kabiru Hannafi Ibrahim
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Least Squares ◽  
Financial Development ◽  
Correction Term ◽  
Trade Openness ◽  
Ordinary Least Squares ◽  
Distributed Lag ◽  
Long Run ◽  
The Impact

This study aimed to scrutinize the impact of financial development, energy consumption, industrialization, and trade openness on economic growth in Indonesia over the period 1984–2018. To do so, the study employed the autoregressive distributed lag (ARDL) model to estimate the long-run and short-run nexus among the variables. Furthermore, fully modified ordinary least squares (FMOLS), dynamic least squares (DOLS), and canonical cointegrating regression (CCR) were used for a more robust examination of the empirical findings. The result of cointegration confirms the presence of cointegration among the variables. Findings from the ARDL indicate that industrialization, energy consumption, and financial development (measured by domestic credit) positively influence economic growth in the long run. However, financial development (measured by money supply) and trade openness demonstrate a negative effect on economic growth. The positive nexus among industrialization, financial development, energy consumption, and economic growth explains that these variables were stimulating growth in Indonesia. The error correction term indicates a 68% annual adjustment from any deviation in the previous period’s long-run equilibrium economic growth. These findings provide a strong testimony that industrialization and financial development are key to sustained long-run economic growth in Indonesia.

A CONTEMPORARY RE-EXAMINATION OF MALAYSIA’S ECONOMIC GROWTH: THE ISSUES OF EQUITY, EFFICIENCY AND LIBERALIZATION

2017 ◽  
Vol 62 (02) ◽  
pp. 509-530 ◽  
Author(s):  
AZFAR HILMI BAHARUDIN ◽  
YAP SU FEI
Keyword(s):  
Economic Growth ◽  
Income Inequality ◽  
Least Squares ◽  
Financial Development ◽  
Direct Investment ◽  
Positive Relationship ◽  
Empirical Investigation ◽  
Ordinary Least Squares ◽  
Statistical Relationship ◽  
Long Run

This paper is an empirical investigation on economic growth for Malaysia, with focus on income inequality, foreign direct investment (FDI), financial development and trade. Co-integrating regression procedures namely, fully modified ordinary least squares (FMOLS), canonical co-integrating regression (CCR) and dynamic ordinary least squares (DOLS) were employed. Positive relationship between growth with financial development and trade are found to be consistent across all estimations. Income inequality on the other hand though negative, does not seem to exhibit robust significant statistical relationship with growth. The orders of integration for variables used have been demonstrated to be governed such that a long-run relationship prevails.

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.

scholarly journals Energy–Finance–Growth Nexus in ASEAN-5 Countries: An ARDL Bounds Test Approach

2019 ◽  
Vol 12 (1) ◽  
pp. 5 ◽  
Author(s):  
Masnun Mahi ◽  
Seuk Wai Phoong ◽  
Izlin Ismail ◽  
Che Ruhana Isa
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Financial Crisis ◽  
Structural Break ◽  
The Philippines ◽  
Ardl Bounds Test ◽  
Long Run ◽  
Bounds Test ◽  
Sustainable Economic Growth ◽  
Finance Growth Nexus

This study examines the relationship between energy consumption, financial development and economic growth for ASEAN-5 countries, namely Malaysia, Indonesia, the Philippines, Singapore and Thailand, over the period from 1980 to 2017. Finance–growth and energy–growth relationships have been well researched; however, the energy–finance–growth nexus is an equally important but less explored area. Our Auto Regressive Distributed Lags (ARDL) bounds test for cointegration results suggests that the variables tend to move together in the long run for all countries, apart from Indonesia. Our study also considers the effect of a structural break due to financial crisis and confirms that the break does not affect the long-term relationship among the variables; in other words, the financial crisis does not affect the energy–finance–growth nexus. Hence, considering the consistency of energy consumption, the importance of the energy sector must not be undermined, and appropriate energy policies are instrumental in maintaining a well-managed financial sector for sustainable economic growth.

scholarly journals Democracy and Growth Nexus in Indonesia

2020 ◽  
Vol 20 (2) ◽  
pp. 208-221
Author(s):  
Azwar Iskandar ◽  
Achmat Subekan
Keyword(s):  
Economic Growth ◽  
Least Squares ◽  
Granger Causality ◽  
Control Variable ◽  
Political Stability ◽  
Ordinary Least Squares ◽  
Causality Test ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run

The objective of this study is to analyze the causality between democracy and economic growth in Indonesia for the period of 1995 to 2017. More specifically, this paper  also attends to investigate the existence of a long-run relationship between them. This study perform a multivariate cointegration test with political stability as a control variable and cross-check this long-run relationship with an autoregressive distributed lag (ARDL) model approach to cointegration. This study also use the Granger causality test within a vector error correction model (VECM) framework and estimate three different models using a non-linear specification: Ordinary Least Squares (OLS) estimation, Fully Modified OLS (FM-OLS) and Dynamic Ordinary Least Squares (DOLS). The results show cointegration among the variables specified in the model when political stability is taken into account. Indeed, for economic growth and democracy to move together in the long run, they need to be associated with political stability. The tests for Granger causality conducted show a long-run causality running from GDP and political stability to democracy. In other word, the economic growth and political stability Granger cause democracy. It is the economic performance that influences democracy and not the reverse. In short-run, there is neutrality causation between democracy and growth, democracy and political stability, growth and political stability. These results suggest that economic growth through strong institutions is a precondition for democratization.

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.

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.

scholarly journals The Interaction Between Area and Production of Food Grain Crops in India : An Empirical Evidence from ADRL Bounds Test Cointegration

2021 ◽  
Author(s):  
RAJARATHINAM A ◽  
Subha S S
Keyword(s):  
Ordinary Least Squares ◽  
Least Square ◽  
Model Parameters ◽  
Cumulative Sum ◽  
Ordinary Least Square ◽  
Grain Crops ◽  
Long Run ◽  
Bounds Test ◽  
Food Grain ◽  
Recursive Residuals

Abstract This paper demonstrates a significant long-run relationship between area and productions of Food grain crops grown in India during the period 1950-2018. Stability of the estimated model parameters are studied . To assess the consistency of the model parameters the cumulative sum of recursive residuals test and the cumulative sum of recursive residuals squares tests are used.Additionally, cointegration equations such as the Fully Modified Ordinary Least Square Dynamic Ordinary Least Squares, and Canonical Cointegration Regression are applied to check the long-run elasticities in the concerned relationship.

scholarly journals The impact of taxation on economic growth in India : A disaggregated approach using the ARDL bounds test to co-integration

2017 ◽  
Vol 5 (1) ◽  
pp. 19
Author(s):  
Subramanya Venkataraman ◽  
Arabi Urmi
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Income Tax ◽  
Series Data ◽  
Ardl Bounds Test ◽  
Long Run ◽  
Indirect Taxes ◽  
Bounds Test ◽  
The Impact

Most Governments in the world are striving to attain long term growth and economic development with taxation as one of the major tools. However, it is necessary to know which components of tax are to be targeted in order to attain economic growth. This study therefore disaggregated the various components of direct and indirect taxes and investigated their effects on Economic Growth in India using time series data from 1977-2015 and the ARDL Bounds test approach to co-integration. The study found that in the long run, among the components of direct taxes, personal income tax had no impact on economic growth whiles corporate income tax had a positive statistically significant impact on economic growth. Further on the indirect taxes, the study found that in the long run, whiles excise duty had no statistically significant impact on economic growth, customs duty had a positive statistically significant impact. The study therefore concluded that policy makers must be circumspect in targeting which tax components to be used as tools in influencing long term economic growth and economic development.

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.

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