Bank Credit and GDP Growth in India: A Study of Causality
Journal of IMS, Ghaziabad, Volume 10, Issue 2, Pages 82 to 87 (2013)
Posted: 1 Jul 2018
Date Written: July 29, 2013
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. This paper is a study of the Indian economy, where the causal relationship between bank credit and economic growth is studied. Data from 1972 to 2012 for the Indian economy has been used for this study, and tests of cointegration, causality and error-correction are run. 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. It does lead to an increase in bank credit to industry. In other words, there is unidirectional causality from bank credit to growth; and from growth to industrial credit.
Keywords: Economic growth, Causality, Time-series analysis, Bank credit
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