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Analyzing the Dynamic Relationships between Physical Infrastructure, Financial Development and Economic Growth in India
Author(s) -
Mohanty Ranjan K.,
Bhanumurthy N. R.
Publication year - 2019
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12190
Subject(s) - causality (physics) , distributed lag , economics , economic interventionism , index (typography) , granger causality , causation , financial sector development , government (linguistics) , macroeconomics , finance , monetary economics , financial sector , econometrics , linguistics , philosophy , physics , quantum mechanics , politics , world wide web , political science , computer science , law
This paper investigates the dynamic relationships between physical infrastructure, financial development and economic growth in the case of India, using the autoregressive distributed lag and the Toda–Yamamoto causality approach for the period 1980 to 2016. A physical infrastructure index and a financial development index are constructed using the principal component analysis. The empirical results suggest that physical infrastructure has a positive effect on economic growth both in the long run and short run, whereas financial development, although significant, has a weak impact on economic growth. The causality test supports a bidirectional causal relationship between infrastructure development and economic growth, while it finds unidirectional causation running from economic growth to financial development. As India is aiming for higher growth for a sustained period, our results suggest that there is a need for government intervention in expanding the physical infrastructure and this, in turn, could lead to economic growth as well as financial sector development.