An Empirical Analysis of Relationship Between Selected Indicators of Sustainable Development and Financial Development in India

This study attempts to empirically examine the link between selected indicators of sustainable development and financial development (measured by a composite index) in India, during 1980 2011. Towards this objective, JohansenJuselius test of co integration and Granger Causality test have been used. The study finds existence of co integration between financial development and indicators of sustainable development in the presence of economic growth. Granger causality / Block Erogeneity Wald test shows that financial development causes life expectancy, and there exists bidirectional causal relationship between financial development and per capita income. Study finds weak direct causation from financial development to environmental outcomes and absence of causation between financial development and gross enrolment ratio. This study, therefore, recommends facilitation of financial sector development for the better health outcomes and reduction of poverty in the economy. However, financial development is not exogenous and is probably constrained by the level of poverty in the economy.