Dynamics among banking penetration, transport infrastructure, and regional growth: an empirical note from Indian states

Abstract

This study examines the dynamics among banking penetration, transport infrastructure and regional growth for 23 Indian states within panel vector error correction framework over the period 2001 to 2017. Findings confirm the presence of long run equilibrium relationship between banking penetration, transport infrastructure and income for the panel. Panel FMOLS and DOLS results suggest that 1% increase in transport (roadways) infrastructure stocks and banking penetration increases the regional growth by 0.0620% to 0.06784% and 0.1836% to 0.1935%, respectively. Further, panel VECM-based causality results suggest that bidirectional causality between the regional growth and roadways infrastructure, banking penetration and regional growth, and banking penetration and roadways infrastructure respectively in long run. However, there is bidirectional causality between regional growth to roadways infrastructure, and banking outreach to roadways infrastructure, and unidirectional causality running from banking outreach to regional growth in the short run. Therefore, improving transport (roadways) infrastructure would be the right step towards regional growth in short run and long run as well.