An Econometric Analysis of Financial Development and Economic Growth in India

The study investigates the long-run and short-run dynamics between financial development and economic growth in India using annual time-series data spanning 1961-2024. The ARDL bounds testing approach confirms the existence of a stable long-run equilibrium relationship between the macro-financial indicators and economic performance. The long-run estimates highlight the dominant role of domestic resource mobilisation in sustaining economic growth, while financial sector variables exhibit relatively stronger effects in the short run. The error correction results indicate a significant adjustment process toward long-run equilibrium following short-term shocks. The Toda-Yamamoto causality analysis reveals a unidirectional causal relationship running from economic growth to financial development, lending support to the demand-following hypothesis in the Indian context.