Financial Development and Economic Growth in India- An Ardl Approach

Abstract

The financial sector plays a vibrant role in the real sector of an economy is a well-documented fact. The growth performance of the Indian economy has moved to higher trajectory since the adoption of economic reforms in 1991 and claimed to an emerging economy and in the race of the biggest economies of the world. In recent years the financial sector has emerged as one of the prominent peripheral factors along with primitive inputs for growth and sustainability of modern economic system. It demands the empirical investigation of such relationship specially for developing economy like India for identifying the role of peripheral factors in the economic development. Th study has used principal component analysis (PCA) on quarterly data 1999-2009 to develop variables representing financial penetration long run relationship between financial development and economic growth is estimated using ARDL. The study concludes that there exists. long run equilibrium relationship between financial development and economic growth of India.