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


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

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

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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