Abstract
AbstractA significant boom occurred in the Indian financial market and growth in the post-liberalization era. This motivates us to analyze the impact of stock market and credit market (two components of financial market) for the growth of financial market. This paper attempts to show the linkage between stock and credit markets and their impact on the Indian economy taking the period after post-liberalization. The period of analysis is from 1994 to 2010; we identify the three variables as stationary and find a relationship between the financial market and gross domestic product (GDP) and a long-run effect of lagged differences in credit market on GDP. It has been inferred that stock market development has larger and more significant long-run mutual effects on economic growth than credit market development in India.
Highlights
Financial sector plays a crucial role in the accumulation of capital and the production of goods and services
We find that stock markets are more important than credit markets for non-agricultural economic growth
The nature of variables used in the model though with similar econometric technique shows based on quarterly data that for the period 1993–2005, stock market development makes no significant contribution while the reforms in the banking sector, those related to interest rate deregulation plays a significant role in the economic growth
Summary
Financial sector plays a crucial role in the accumulation of capital and the production of goods and services. The nature of variables used in the model though with similar econometric technique shows based on quarterly data that for the period 1993–2005, stock market development makes no significant contribution while the reforms in the banking sector, those related to interest rate deregulation plays a significant role in the economic growth. Apart from these sources of finance, international financial flows play a major role in meeting the demand for capital in the form of foreign direct investment, migrant remittances, and overseas development assistance From this perspective, it is useful to understand the nature of interrelationship between stock market, credit market, and economic development
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