Impact of Financial Development on Economic G...

Impact of Financial Development on Economic Growth of India in Post-liberalization Period

Author Name : Rahman Atabak

The main objective of this study is to examine finance-growth relationship and explore the impact of financial development indicators on economic growth in the context of India. Numerous theoretical and empirical studies have been conducted aiming at determining the finance-growth relationship. The majority of them support the positive relationship, whereas there are some studies examined the relationship between each financial variable and economic growth, and found some negative evidence between some specific indicators and economic growth. For this study, time-series data for the period 1991-2018is used and Autoregressive Distributed Lag (ARDL) model is adopted to achieve the objectives of the study. For removing multi-collinearity, correlation analysis is conducted. The results suggest that only broad money has negative and significant relationship, and other financial development indicators have positive relationship with real GDP. Market capitalization and narrow money have positive and significant relationship whereas credit to private sector and gross fixed capital have positive but insignificant relationship with real GDP. These findings have valuable implications for policymakers and players to focus more on maintaining low rate of broad money and encouraging narrow money, market capitalization, credit to private sector, and gross fixed capital formation in financial system.