A STUDY OF FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: AN EMPIRICAL EVIDENCE FROM AN INDIAN ECONOMY

Abstract

Purpose: Using yearly information from 1982 to 2020, the paper‘s goal is to investigate the link between economic growth & financial development in India. Design/methodology/approach: ADF, KPSS, Ng– Perron, and DF-GLS unit root tests are used to verify stationarity characteristics. The autoregressive distributed lag (ARDL) technique to co-integration is used to investigate short and long-run dynamics. Findings: The co-integration test reveals a long-term link between India's economic growth and financial development. According to the findings of the ARDL tests, both market and bank-based indices of financial development have a significantly and positives influence on India's economic growth. As a result, the findings back up the supply-side hypothesis and emphasize the significance of financial development in economic growth. The results also suggest that the Indian financial sector, which is dominated by banks, has the ability to develop the economy through credit transmission. Originality/value: To achieve long-term economic growth, the current study suggests suitable financial market changes. Policymakers that aim to maintain a simultaneous expansion of growth and financial development may find the findings valuable.