Analyzing the Dynamic Relationships between Physical Infrastructure, Financial Development and Economic Growth in India. Issue 4 (19th February 2020)

• Record Type: Journal Article
• Authors: Mohanty, Ranjan K.; Bhanumurthy, N. R.
• Is Part Of: Asian economic journal. Volume 33:Issue 4(2019:Dec.)
• Page Start: 381
• Page End: 403
• Publication Date: 2020-02-19
• Subjects: infrastructure index -- financial development index -- economic growth -- ARDL approach -- India; Asia -- Economic conditions -- 1945- -- Periodicals; 330.95
• DOI: 10.1111/asej.12190
• Languages: English
• ISSNs: 1351-3958

Abstract

Abstract : 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.