Drishtikon: A Management Journal

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

A Study of Causality Between Bank Credit and GDP Growth in India


Affiliations
1 Economics and Finance, Nirma University, Ahmedabad, Gujarat, India
     

   Subscribe/Renew Journal


The factors that cause Economic growth are varied and diverse. Theory has however managed to identify certain key factors, of which finance is one. In recent years, there have been studies using econometric time-series analysis to study the short-run and long-run relationships between finance and growth, for various countries. This paper is a study of the Indian economy, where we try to determine the causal relationship between bank credit and economic growth. Data from 1972 to 2012 for the Indian economy has been used for this study. The results suggest that provision of bank credit leads to economic growth. However, an increase in economic growth may not lead to further provision of bank credit in the economy. In other words, there is unidirectional causality from bank credit to growth.

Keywords

Economic Growth, Causality, Time-Series Analysis, Bank Credit.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Acharya, D., Amanulla, S., & Joy, S. (2009). Financial development and economic growth in Indian states: An examination. International Research Journal of Finance and Economics, (24).

  • Bagehot, W. (1873). Lombard Street, Homewood, IL: Richard D. Irwin, (1962 Edition).

  • Bell, C., & Rousseau, P. L. (2001). Post-independence India: A case of finance-led Industrialization? Journal of Development Economics, 65, 153-175.

  • Blackburn, K., Bose, N., & Capasso, S. (2005). Financial development, financing Choice and economic growth. Review of Development Economics, 9, 135-149.

  • Boyd, J. H., & Prescott, E. C. (1986). Financial intermediary-coalitions. Journal of Economic Theory, 38, 211-232.

  • Boyd, J. H., & Smith, B. D. (1998), The evolution of debt and equity market in Economic development. Economic Theory, 12, 519-560.

  • Chakraborty, I. (2007). Does financial development cause economic growth? The case of India. Occasional Paper 9, Institute of Development Studies, Kolkata.

  • Chakraborty, I. (2010). Financial development and economic growth in India: An analysis of the post reform period. South Asia Economic Journal, 11, 287.

  • Chakraborty, I., & Ghosh, S. (2011). The relationship between Financial Development and Economic growth and the Asian financial crisis: An FMOLS analysis. International Journal of Economic Research, 2(3), 88-101.

  • Demetriades, P. O., & Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51, 387-411.

  • Goldsmith, R. W. (1969). Financial Structure and Development. New Haven, Conn.: Yale University Press.

  • Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98, 1076-1107.

  • Jung, W. S. (1986). Financial development and economic growth: International evidence. Economic Development and Cultural Change, 34, 333-346.

  • King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108, 717-738.

  • McKinnon, R. I. (1973). Money and capital in economic development. Washington, D.C.: Brookings Institution.

  • Mishra, P. K., Das, K. B., & Pradhan, B. B. (2009). Credit market development and economic growth in India. Middle Eastern Finance and Economics, (5).

  • Neusser, K., & Kugler, M. (1998). Manufacturing growth and financial development: Evidence from OECD Countries. Review of Economics and Statistics 80, 638-646.

  • Pagano, M. (1993). Financial markets and growth: An overview. European Economic Review, 37, 613-622.

  • Patrick, H, (1966), Financial Development and Economic Growth in Underdeveloped Countries, Economic Development and Cultural Change 14, 174-89.

  • Pradhan, R. P. (2010a). The nexus between finance, growth and poverty in India: The cointegration and causality approach. Asian Social Science, 6(9).

  • Pradhan, R. P. (2010b). Financial deepening, foreign direct investment and economic growth: Are they cointegrated. International Journal of Financial Research, 1(1).

  • Pradhan, R. P. (2011). Financial development, growth and stock market development: The trilateral analysis in India. Journal of Quantitative Economics, 9(1).

  • Rousseau, P. L., & Sylla, R. (2005). Emerging financial markets and early U.S. growth. Explorations in Economic History, 42, 1-16.

  • Schumpeter, J. A. (1912). Theorie der Wirtschaftlichen Entwicklung. Leipzig: Dunker & Humblot, [The Theory of Economic Development, 1912, translated by R. Opie. Cambridge, MA: Harvard University Press, 1934.]

  • Shaw, E. (1973). Financial deepening in economic development. New York: Oxford University Press.


Abstract Views: 375

PDF Views: 2




  • A Study of Causality Between Bank Credit and GDP Growth in India

Abstract Views: 375  |  PDF Views: 2

Authors

Dhiren Jotwani
Economics and Finance, Nirma University, Ahmedabad, Gujarat, India

Abstract


The factors that cause Economic growth are varied and diverse. Theory has however managed to identify certain key factors, of which finance is one. In recent years, there have been studies using econometric time-series analysis to study the short-run and long-run relationships between finance and growth, for various countries. This paper is a study of the Indian economy, where we try to determine the causal relationship between bank credit and economic growth. Data from 1972 to 2012 for the Indian economy has been used for this study. The results suggest that provision of bank credit leads to economic growth. However, an increase in economic growth may not lead to further provision of bank credit in the economy. In other words, there is unidirectional causality from bank credit to growth.

Keywords


Economic Growth, Causality, Time-Series Analysis, Bank Credit.

References