Causal Linkage between International Financial Integration and Economic Growth: Evidence from Post Globalized Indian Scenario
In recent years, there has been a growing literature highlighting, at both theoretical and empirical level, the importance of having a deep financial integration to promote economic growth. The impact of international financial integration on economic growth continues to be one of the most debated issues among international economists. This paper re-examines causal relationship between financial integration and economic growth, more precisely, the effect of international financial integration on the economic growth in India. The Johansen cointegration test suggests that there is cointegration and hence, confirmed the existence of long run equilibrium relationship between financial integration and economic growth. The Granger- causality test finally confirmed the existence of uni-directional causality which runs from economic growth (GDP) to international financial integration (IFI) and not vice versa. This indicates that economic growth accelerates financial integration in India but financial integration does not found to have any impact of economic growth of India.It is suggested that government has to deepen foreign capital inflow as well as capital outflow and undertake essential measures to strengthen the long run relationship between financial integration and economic growth.
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