Financial development and economic growth in Indian states: An examination

Abstract

This paper aims to investigate the relationship between financial development and economic growth (FE) in the Indian states. In pursuit of this objective, the tests of Panel Cointegration and Fully Modified Ordinary Least Squares (FMOLS) are conducted by using three panel data sets viz., (i) data on BIMAARU states, (consisting of five states); (ii) data on nine other Indian States and (iii) data on full sample of fourteen states (BIMAARU states as well as nine other Indian states). The data used in this study consists of the annual data on Net State Domestic Product and Total Commercial Bank Credit Outstanding in various sectors during period 1981-2002, collected from various publications of Reserve Bank of India and Central Statistical Organisation. The panel cointegration results confirm a long-run relationship between financial development and growth across Indian states. © EuroJournals Publishing, Inc. 2009.